| Abstract: | This research was conducted assess the factors and practice of non-performing loan (NPL) in
Development Bank of Ethiopia, more specifically assessed bank specific factors (Credit
monitoring, Credit assessment) customers related factors (loan diversion, customers orientation
or attitude towards non-performing loan) and external factors(macroeconomic, marketing
factors and political instability) as causes towards NPLs in DBE. The data for the study was
collected from primary and secondary sources. Primary data was collected using both structured
and open ended, questionnaires from seventy nine staffs and customers of the bank at both head
office and Addis Ababa district,. Secondary data of five years NPL ratio collected from annual
loan portfolio report and planning report of the bank to illustrate the incremental rate of nonperforming loan of development bank of Ethiopia. Descriptive statistics were used to analyze and
examine the collected data. Based on the findings of secondary data from DBE the result
indicated that the Bank’s NPLs stood at 24.1% by the end of June 2019/2020; the Bank’s NPLs
stood at 26.13% by the end of June 2020/2021; NPL of year 2021/2022 (G.C) (2014 E.C) was
19.27. The results indicated that among the bank specific factors that accounted for the
incidence of NPLs, poor credit monitoring/follow up is the major cause of NPL in DBE and
Inefficient/improper customer assessment of the bank, Poor credit appraisal, and poor credit
advice and consultancy of customer ranked second, third, and fourth, respectively as the cause
for the occurrence of the NPL in DBE. In addition customer’s related causes that the result
showed diversion of loan fund, knowledge and experience of customers about project
management and weak project management capacity of the borrowers were the major factors of
NPL in DBE. Moreover other factors discussed with respondents through open ended
questionnaires and found poor credit monitoring, political instability, credit culture of
customer’s, macroeconomic factors and marketing factors causes accumulation of bad loan.
The study recommended that DBE should reduce its high non-performing loans to blow 15%
by working on factors identified by this study that cause NPL such as bank specific factors and
customer’s related factors that causes NPL. |
