ASSESSMENET ON PRACTICES AND CHALLENGES OF PRE-SHIPMENT EXPORT CREDIT: EVIDENCE FROM COMMERCIAL BANK OF ETHIOPIA AND AWASH BANK

Abstract

This study assessed and identified the existing practice and challenges of pre-shipment export credit in two giant commercial Banks namely Commercial of Ethiopia and Awash Bank. The total target population of the study was 72 professional employees working under credit processing unit. The data was collected though questionnaire and analysed. The result of the study generally indicated that the pre-shipment export credit utilization as compared to other types of credit service new product and very low share and banks largely really on the proposal and integrity of the exporters while approving the pre-shipment export credit export. Whereas, lack of effective monitoring, loan diversion, the honesty and integrity of the borrowers and lock of sound credit evaluation method are coined as the main challenges of the pre-shipment export credit and bankrupt of the exporter business, cancelation of the contracts, and refusal of payments and diversion of the loan are factors which diverts the pre-shipment export credit to non-performing loan. Therefore, in order to increase utilization of the pre-shipment credit service banks should design a specific program to encourage new and emerging export though delivering the pre-shipment export credit service in main regional districts. To minimizing the risk of non-performing loans banks should introduce appropriate decision-making and control mechanisms supported by modern management information system. Finally, to better enhance and promote the export turnover the federal government should consider the establishment of export import (EXIM) bank for providing financial assistance to exporters and importers.