“Determinants of Loan Repayment Performance: For the Cases of Development Bank of Ethiopia, Adama District”

Abstract

Development Bank of Ethiopia plays vital role in supporting the national development agenda by providing loan to viable projects. The study assessed Development Bank of Ethiopia Adama district, with the objective of assessing the determinants of loan repayment performance of borrower’s financing. The study employed explanatory research design and quantitative research approach. Both primary and secondary data was collected from 98 projects financed at the end of June 30, 2023 G.C. Primary data were collected using questionnaires and the secondary data were collected through verifying documents or each individual files and from data base of the bank. The total population of the study was 98, of which 43 (43.90%) were non-defaulters and 55(56.10%) were defaulters borrowers. In this study the data obtained from borrowers was analyzed using descriptive statistics analysis and Binary Logit Model was used to measure the variables those determining loan repayment performance. In the logistic regression model, a total of thirteen’s explanatory variables representing four dimensional factors namely borrowers’ related factors, lender-related factors, project and loan related factors, and external factors were considered to analyze loan repayment performance. As per the results of binary logistic regression revealed that, credit experiences of borrower’s, project follow-up, given grace period, business sector and accessibility of infrastructures have found to be significant effect on loan repayment performance. On the other hand, rests have found to be insignificant effect on loan repayment performance. Finally, based on the descriptive and econometric results/analysis, the researcher has recommended to the bank to undertake proper screening, disbursing loan at the right time, conduct proper follow-up, provide sufficient amount of loan as per the feasibility study of the project, solve other difficulties as identified in this study and work on all factors affecting loan repayment performances and to minimize loan default rate.