The Impact of Credit Management Practices on Financial Performance: A Case Study of the Development Bank of Ethiopia, Ambo District Office

Abstract

Credit management plays a pivotal role in the operational and financial sustainability of financial institutions, particularly those engaged in development finance. Effective credit management ensures that institutions can extend credit responsibly, minimize default risk, and maintain healthy financial performance. This study investigates the impact of credit management practices on the financial performance of the Development Bank of Ethiopia (DBE), with a specific focus on its Ambo District Office. The research aims to assess how core components of credit management such as credit appraisal, risk assessment, loan recovery, and monitoring mechanisms contribute to or hinder institutional performance. A mixed-method approach was employed, combining descriptive and explanatory research designs. Primary data were collected through structured questionnaires administered to 120 staff members selected via stratified random sampling across key operational departments. Secondary data were also reviewed to complement the analysis. Quantitative techniques including descriptive statistics, correlation, and multiple regression analysis were used to examine the relationships between credit management variables and financial performance indicators. The findings reveal that while DBE has established foundational credit management procedures, gaps remain in areas such as borrower screening, risk mitigation strategies, and post-disbursement follow-up. These shortcomings have a measurable impact on loan recovery rates and overall financial performance. The study concludes that strengthening institutional capacity, enhancing staff training, and adopting more rigorous credit evaluation frameworks are essential for improving outcomes. The insights generated from this research are expected to inform policy decisions within DBE and offer guidance to other development finance institutions facing similar challenges