FACTORS AFFECTING NON-PERFORMING LOANS IN BANKING INDUSTRY IN ETHIOPIA: A CASE OF DASHEN BANK

Abstract

The problem of non-performing loans is seen as a burden on any country’s economy or financial institution and putting downward pressure on its growth. This is because the role of banks as financial intermediaries does not function properly due to the problem of non-performing loans (NPLs). In view of that, this study has been tried to examine the factors affecting non-performing loans in Dashen bank Sc. A quantitative research design were used in the methodology and using cross-sectional research design a sample size of 50 respondents of staff of Dashen Bank’s credit department were used to collect data. Of which 42 questionnaires have returned; and the collected data has been processed through (SPSS) version 23 software and analyzed by descriptive statistical method. The findings indicated that diversion of funds for unnecessary expansion of business and speculations leading to investing in high risk assets to earn high income and legal environment which reflects the availability or non-availability of foreclosure laws and ownership rights for both domestic and foreign investors have been factors influencing NPLs. The study suggests that much attention should be given to proper credit assessment and risk management techniques, introducing and implementation of an aggressive debt collection policy, and strong loan follow-ups. Besides, the bank should exert additional effort to better manage its NPL position.