DETERMINANTS OF LOAN REPAYMENT PERFORMANCE IN PROJECT FINANCING: A CASE STUDY IN DEVELOPMENT BANK OF ETHIOPIA

Abstract

This study was conducted on the Determinants of loan repayment performance in project financing; in the Case of Development Bank of Ethiopia, Head office. Being the data was collected from both secondary and primary sources, for secondary data purpose, 105 individual borrowers’ files were reviewed and Nine (9) top level employees of the bank were selected through purposive sampling technique and were interviewed for primary data collection purpose. Of 105 individual borrowers’ files used for secondary data purpose, 70 were successful financed projects, whereas the rest 35 were defaulters. The study used both Explanatory and descriptive research design with quantitative and qualitative data. The variables used in the study were , amount of loan, credit experience, educational status of borrower/manager, equity contribution ratio, project profitability, managerial experience of project manager, number of project follow-up, project implementation period delay, appraisal, due diligence and Grace period. In the study, logit model was used to identify variables which determine loan repayment performance. The paper revealed that managerial experience of project manager, equity contribution ratio, delay in project implementation period, credit experience, educational status of borrower/manager and due diligence are statistically significant determinants of loan repayment performance of DBE’s financed projects. Analysis of econometrics result suggested that equity contribution ratio of borrowers of Development Bank of Ethiopia should be increased to make the borrowers more ethically responsible; give due attention to minimize the bureaucracy that delays project implementation period, and improve its efficacy of customer recruitment system/due diligence/ by giving special considerations to educational status of borrower/manager, managerial experience of Project managers and credit experience of borrowers among the others.