“ASSESSMENT ON LOAN AND ADVANCE MANAGEMENT‟‟ THE CASE IN SOME SELECTED PRIVATE BANKS OF ETHIOPIA

Abstract

Loan and advance management is one of the most important activities in banking industry and cannot be overlooked by any economic enterprise engaged in credit irrespective of its business nature. Sound credit management is a prerequisite for a financial institutions stability and continuing profitability, while deteriorating credit quality is the most frequent cause of poor financial performance and condition. As with any financial institution, the biggest risk in banking sector is lending money and not getting it back. The main objective of this study is to evaluate the performances of loan and advance management on some selected private banks of Ethiopia. Based on the broad objective, a number of specific research questions were developed. To achieve this broad objective, the study used mixed research (more of qualitative) approach. Sample size of 70 members of staff was drawn from the 132 populations in the selected six banks. The stratified random sampling method taking into consideration on this research as a cluster was used to identify banks and respondents sample size for the study. A survey study was conducted with professionals engaged in credit areas of the selected banks holding different positions and two main sources of data were used for the study namely, the primary (questionnaires and interviews) and secondary (audited financial statements, annual reports and NBE reports). Descriptive research method using table, graphs and percentages were used in analyzing the data. The findings of this study, among others, shows that based on the opinions’ of the respondents, interviews argued and analysis of documents, the occurrences of default loans had highly influences the performances of banks and it scare the existence of loans and advances to the needy customer. Hence, the study recommends that banks should enhance their loan quality by updating their policies and procedures to lenient policies for effective debt recovery so as to minimize default loans.