Effect of credit assessment process on loan repayment: A case study on Development Bank of Ethiopia, west region

Abstract

The bank’s loan repayment is influenced by a number of factors, and few studies have been conducted to examine the factors that can affect the loan repayment performance of banks in various countries. This study was therefore, conducted with the objective of analyzing the effect of credit assessment process on Development Bank of Ethiopia, west region, using primary data collected through structured questionnaire and secondary data collected through document analysis. The result of logistic regression show that document screening, due diligence assessment, credit appraisal assessment, loan approval review, credit policy and loan monitoring and follow up are important and significant factors that enhance the odds to loan repayment performance of DBE, west region. The findings of this study clearly indicated that probability to repayment resulted from screening process, detail due diligence assessment (know your customer), credit appraisal, appropriate credit policy and project monitoring and follow up. Any problem with those credit assessment processes will leads to delay in loan repayment. According to these findings, Development Bank of Ethiopia, west region is recommended to see into these factors with care and design a better lending strategy focusing on quality screening process and due diligence assessment through collecting detail information about the borrower, quality credit appraisal assessment by assigning skilled personnel, effective follow up and supervision, training and approval of appropriate loan size so as to minimize the loan default problem observed. Moreover, the processes should be worked out to identify borrower capacity and any obligations that may interfere with loan repayment