Impact of Bank Marketing Factors on Nonperforming Loans in Ethiopian Banking Industry

Abstract

This study intended to examine impact of bank marketing factors (knowledge and experience, customer relationship management, communication, bank size, loan size, lending interest rate and unfair competition) on nonperforming loans. The researcher used a questionnaire adopted from the previous studies and relevant literatures. Data was collected from credit professionals engaged in both private and state owned Banks in Ethiopia banking industry holding different positions using a self- administered questionnaire. The study validate that, bank marketing factors have an effect on nonperforming loan. The Pearson correlation coefficient of the study signifies that all independent variables and dependent variable have significant and positive relationships with one another and considerably contributing among themselves. Moreover, the findings of the study shows that inadequate knowledge and lack of practical experience of credit operators in credit processing, impractical customer relationship management implementation, ineffective communication practice and unfair competition among banks on scarce resources significantly attribute to the causes of loan default. Besides, bank size and loan size are among the bank marketing factors which have significant effect on nonperforming loan enhancement as their size increase in the banking industry of Ethiopia. However, the study outcome failed to support the existence of the association between banks’ lending interest rate and occurrences of nonperforming loans. x The study suggests that banks should put in place human capital development specifically on knowledge and practical experience exposure of the credit operators, effective communication skills, and customer relationship management practice: those would results in proper customer selection, robust credit analysis, authentic sanctioning process, proactive monitoring and follow up and clear recovery strategies for defaulted loan. Moreover, banking industry should work on developing the competency of credit staffs, information system management pertaining to credit and efficiency of the credit process that would reduce nonperformance of loans.