Factors Affecting Lending Decision of Commercial Banks in Ethiopia: A Case Study of Selected Private Commercial Banks
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Date
2018-06
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Addis Ababa University
Abstract
This research study was conducted with the aim of identifying and examining the lending models
or customer specific factors and their most considered factors by some selected private
commercial banks in Ethiopia while evaluating and approving their customer loan requests . It
also tries to find whether the banks differ in their use of these models. The study covered four
private commercial banks namely, Dashen Bank (DB), Awash International Bank (AIB),
Wegagen Bank (WB) and Nib international bank (NIB). These banks were selected based on
their share of contribution for annual disbursement in the economy in the year covering from
(2011/2012 to 2015/2016). During the period they were the top four private banks which
contribute 5% and above from the average annual new disbursement. In order to address the
objectives of the research a questionnaire was designed and filled by randomly selected credit
performer at the head office and district level. Descriptive statistics and analysis of Variance or
ANOVA test have been used to draw conclusions. The research found that the selected banks use
various types of lending models in evaluating credit applications. The average percentages were
used to find out the elements the banks concentrate most in each method, and it was found that
the banks consider most the collateral, capital, capacity, liquidity, profitably, debt ratio and
credit track records. Generally they most think about how the money can be returned back and
how much security, collateral or protections are available. On the other hand, they do have least
consideration on management quality of the applicant, operational ratios, condition of the
economy and the industry, purpose, prospect or plan. It was also found through hypothesis
testing that the application of lending Model in the banks under consideration is different. Thus
the banks in the study should have reasonable risk appetite and improve the level of
consideration for business operational analysis. Besides, they should also make sure that the
benefit of overriding the lending principles out weight the potential default risk.
Description
A thesis submitted to the school of graduate studies of Addis Ababa
University in partial fulfillment of the requirements for the
Degree of Master of Science in accounting and finance
Keywords
CAMPARI, FAPE, IRG, LAPP, Lending Models