THE STATE OF BANK SPECIFIC DETERMINANTS OF NONPERFORMING LOANS IN SELECTED ETHIOPIAN PRIVATE COMMERCIAL BANKS

Abstract

This study intends to assess Bank specific determinants of nonperforming loans in Ethiopian private commercial banks. The sample size of the study were six banks selected out of those private banks established before 2010G.C in Ethiopia by using purposive sampling technique. The quantitative research approach was adopted for the study and survey conducted with professionals engaged in these private commercial Banks of credit departments using a self-administered questionnaire and in-depth interview. In addition, the study used structured review of documents and records of these banks. The findings of the study shows that poor credit risk assessment, under developed credit culture/orientation, poor understanding of credit terms and conditions, imposing highest interest rate on loan, poor credit monitoring and rapid credit growth or greater risk appetite for the occurrence of nonperforming loans. However, the study outcome did not support the existence of relationship between banks size and occurrences of nonperforming loans. The study suggests that banks should put in place appropriate terms and conditions, impose moderate lending rate, restrain from engaging in aggressive lending, put in place a effervescent credit process, give due emphasis in developing the competency of credit operators, proactive monitoring; organizational capacity enrichment of banks with exerted effort to develop culture of the community towards credit and its management.