AN ASSESSEMENT OF NON-PERFORMING LOAN OF COMMERICAL BANKS OF ETHIOPIA

Abstract

This study intends an assessment of non-performing loan of commercial banks of Ethiopia. The mixed research approach was adopted for the study. Survey was conducted with professionals engaged in both private and state owned Banks in Ethiopia holding different positions using a self-administered questionnaire. In addition, the study used structured review of documents of banks and in-depth interview of senior bank officials in the Ethiopian banking industry. The findings of the study shows that poor credit assessment, failed loan monitoring, lenient credit terms and conditions, aggressive lending, compromised integrity, weak institutional capacity, unfair competition among banks, willful default by borrowers and their knowledge limitation, fund diversion for unintended purpose, over/under financing by banks ascribe to the causes of loan default. The study suggests that banks should put in place a vibrant credit process that ensures proper customer selection, robust credit analysis, authentic sanctioning process, proactive monitoring and clear recovery strategies for sick loans; formulate a clear policy frame work that addresses issues of conflict of interest, ethical standard and check and balance in credit process; organizational capacity enhancement of banks; deliberate effort to develop culture of the public towards credit and its management by banks and ensuring prudent policies that govern bank loans