Assessment of Loan Recovery performance in Development Bank of Ethiopia

Abstract

This study is carried out as an assessment of loan recovery performance in Development Bank of Ethiopia. The study is based on primary data collected through questionnaires survey from 118 employees working in loaning unit of Bank. The study also uses secondary data collected from financial statements, quarterly reports, annual reports, credit policy, and procedure. Descriptive research methods has been employed to identify the loan recovery performance of the Bank. The assessment result shows that the loan repayment period, assessment of customer credit history, collateral estimation, project follow up, monitoring and controlling system, delays to decide on non performing loans has affected the loan recovery performance of the Bank. The study is of crucial importance to measure whether DBE does have adequate policies & procedures manual, whether the credit unit verifies outstanding liabilities of the borrowers before additional and new loans are granted, the existence & adequacy of feasibility study, whether the bank has a proper way of gathering credit information internally & externally. Inadequate credit policies and procedures manuals, unrealistic loan repayment period, inefficient analyses of customers’ financial statement and absence of well-designed project follow up system are the major finding of the study. Based on these findings, I recommend the bank to exert maximum efforts to be updated & review the credit policies & procedures manual frequently as the policies & procedures of the bank are outdated and do not consider the current situation, Furthermore, the bank loan repayment period should consider the nature and cash flow of the project in order to collect the loan as per the repayment schedule instead of performing based on assumption and in terms of loans period. At the final point, the bank should give prior attention to the human resource development through short term training, job rotation, and experience sharing. Particularly creating awareness in relation to analysis of customers’ financial statements is crucial since Analysis of the financial statements of borrowers is an important means to obtain information about how the borrowers operated in the previous period. The study will help to enhance the efficiency and effectiveness of loan administration operation & provide different methods and ways to safe guard asset (primarily loans), adequacy, and accuracy of its loan review function; promote to comply with management policy, procedure, applicable laws, and regulation