Analyzing The Causes Of Loan Non-Performance Of Commercial Banks In Ethiopia: The Case Of Oromia Bank S.C

Abstract

This research paper was present analyzing the causes of loan non-performance of commercial banks in Ethiopia: the case of Oromia bank s.c. Many factors attributed to the growth of banking industries. Among these, the major one is loan recovery performance of banking industry. The study was conducted based on the data gathered from ten Oromia bank branches depending on their grade, four main districts, credit management department and credit monitoring & loan recovery department. Descriptive research design was used to answer the research questions that appear through the review of existing materials and the experiences of the researcher in line with the assessment of loan recovery performance of banking industry in Ethiopia. A sample size of 108 is taken which equal to target population. For branches buy using stratified sampling and for Head office and districts purposive sampling method was adopted for the study. The data used to conduct this research was collected from both primary data and secondary data. Secondary data was collected from annual report of Oromia bank s.c and different thesis in this area. Questionnaires were employed to Oromia bank selected 10 main branches in respect of their grade and transaction, credit management department employees, Credit monitoring and loan recovery management department and District offices. Data was analyzed by using SPSS version 20, tables, graph and brief interpretation by sentences. The findings of the study indicated that there are many factors which hamper loan recovery performance of Oromia Bank S.C. These factors are: internal (Bank-related factors) and external (Customer-related factors) and Uncontrollable factors that are contributing to non-performing loans. The researcher recommends that the bank should provide technology that alerts the customers before/on the time of repayment, the bank should effectively use the potential man power, the Bank should revise its credit procedural manual and strongly follow up to reduce the amount of non-performing loans in order to increase performance of loan recovery. Finally, the bank help the borrower as they update their management expertise, use adequate planning & accounting systems, start with enough initial capital, provide awareness on concept of bank loans, how to win strong competition, not to divert Loan purpose and others.