ASSESSMENT OF THE PERFORMANCE OF PROJECT FINANCING: A STUDY ON SELECTED PRIVATE COMMERCIAL BANKS IN ETHIOPIA

Abstract

The study was focused on the Assessment of the Performance of Project Financing in Private Commercial Banks in Ethiopia. Cross sectional survey design was employed. Using a case study involving 108 respondents comprising of all the technical staff from Six Private Commercial Banks in Ethiopia, namely, DAB, AIB, BOA, WEB, UNB and NIB, a descriptive and correlation analysis was used to investigate the relationship between loan appraisal, financial viability, technical feasibility, credit rating, credit follow-up, risk transfer, risk diversification, risk retention and loan performance. The findings indicated that loan appraisal, credit rating, financial viability, technical feasibility; credit risk management had a positive and significant relationship with loan performance or in other word there exist significant negative correlation between the factors and NPLs of project loans. Finally, it is recommended to the Private Commercial Banks in Ethiopia to give a due emphasis on project Loan Appraisals with different approaches from traditional financing and take an appropriate credit follow-up procedures after disbursement of the project loan since failing to do so will be adverse on performance. Similarly, it is also recommended that private banks should minimize risks on this newly entered financing through employing various credit risk management techniques, including transfer, diversification and technical retention.