The Effect of Loan Monitoring Practices on Loan Repayment Performance: Evidence from Selected Ethiopian Private Banks
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Date
2026-06-02
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Addis Ababa University
Abstract
This study evaluates the impact of post-disbursement monitoring practices on loan
repayment performance within the Ethiopian private banking sector, focusing on
Awash Bank S.C. and Dashen Bank S.C. It addresses the critical operational
challenge of credit risk management by assessing how different monitoring methods
influence credit recovery. An explanatory, cross-sectional research design was
deployed, utilizing a quantitative approach to analyze survey data collected from
credit professionals. Diagnostic tests were conducted to verify data integrity prior to
executing ordinary least squares multiple linear regression and analysis of variance.
The empirical model demonstrated high explanatory power, accounting for a
substantial majority of the variance observed in loan repayment performance. The
regression analysis revealed that active loan covenant tracking serves as the primary
engine for credit discipline, exhibiting the strongest positive predictive power.
Collaborative borrower advisory services also share a significant positive
relationship with portfolio quality. Conversely, static internal credit risk ratings show
a non-significant independent effect on active recovery, while tracking financial
statement timeliness yields an unexpected inverse relationship with repayment success,
exposing a reliance on administrative compliance schedules rather than substantive
cash-flow verification. Based on these insights, it is suggested that private banks
transition toward automated dynamic covenant compliance systems and build
dedicated business development advisory units to proactively minimize defaults.
Furthermore, internal grading frameworks could be re-engineered from static pre-
disbursement baselines into real-time behavioral scoring models driven by live
account activities
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Keywords
Post-Disbursement Monitoring, Loan Repayment Performance, Private Banks, Covenant Compliance, Borrower Advisory Services, Ethiopia, Credit Risk Management, Multiple Linear Regression