Assessment of the Causes of Non-Performing Loan at Development Bank of Ethiopia (DbE)
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Date
2022-06-01
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A.A.U
Abstract
The main objective of this research was Assessment of the Causes of Non-Performing Loan at Development Bank of Ethiopia (DBE), this study presented by explanatory research design, and used mixed research approach: qualitative and quantitative approach mainly used qualitative approach to analyze data. This study applied semi-structured interview with the DBE’s loan officer to collect the primary data and also used secondary data: reviewed the written materials, DBE’s manual, policy, the directives of National Bank of Ethiopia and also retrieved materials from internet. And also ratio of bad debt to operating income calculated. The major findings classified the causes of NPL into three categories: bank side, customer side and external. The bank side contains inadequate information, lack of follow-up and decision making and over patience. The customer side: lack of equity, loan diversion, willful defaulters and management problem. And external: inflation, foreign currency, government and marketing are the causes of NPL are beyond the bank and the customers’ capacity. These major causes of NPL have the negative effect on the bank’s performance. As per the NBE directive, DBE shall provision for all loan. This provision for loan declines 82.97% of total operating income of the bank, the difference of the loan and the value of collateral is the bank’s loss and the bank is exposed to pay unnecessary expenses due to taking over and managing the companies in NPL. According to these findings these recommendations have been presented: the bank has to apply decisions about the companies in NPL and before granting loan, the bank should implement special assessment to avoid at least to reduce NPL.