A RESEARCH PROJECT ON ASSESSMENT OF NPLS AND EVALUATION OF THEIR CAUSES IN ETHIOPIAN PRIVATE BANKS WITH SPECIFIC REFERENCE TO BOA

Abstract

While financial institutions used to face difficulties for a multitude of reasons, the major cause of serious banking problems continues to be directly related to the occurrence and rise of NPLs as a result of many macro and micro factors. Hence, this study was conducted to assess the status of Non-performing Loans (NPLs) and evaluate their causes especially the seven bank specific causes (poor credit risk assessment, poor credit monitoring, collateral, Granting loan to highly levered borrowers, Loan divert ion, Borrowers orientation, Credit size ) that were considered to contribute to NPLs in Ethiopian Private Banks with specific reference to BOA. To this effect, the researcher has selected 12 senior private commercial banks in Ethiopia to fetch for relevant data for the last ten years as secondary sources of data. However, due to the secrecy of some data keeping principle of the banks no sufficient data especially on NPLs records could be found. These data were collected from NBE and the respective banks archive records. The collected data was subject to descriptive analysis to answer the research questions. The analysis was made using the SPSS software package. These included frequencies, descriptive statistics of means and standard deviations. As far as the secondary data sources were concerned the NPLs trend is showing a down ward sloping. With respect to the primary source of data, however, the contribution of most of the independent variables to the status and occurrence of NPLs is quite significant. The finding revealed that all the causes have a direct relationship with the rise in NPLs. While tested with each other, the correlation of the independent variables discovered the existence of both negative and positive relationships. Among the seven independent variables the two variables that the researcher focused on more, namely; Loan divert ion and providing loan to Highly levered borrowers were finally concluded to have been the major contributing factors for the occurrence and rise of NPLs in Ethiopian Private banks with specific reference to BOA. Finally, Private Banks were also recommended to focus on all aspects of impacts of the above mentioned independent variables in order to mitigate solution they may pose on the occurrence of NPLs. Future researchers who may have an interest to conduct a research on similar topic can use this research paper as an input by applying an increased size of the samples through wider perspectives of research methods in order to come up with a more reliable and comprehensive research outcome.