Determinants of Loan Repayment: A Case Study in Development Bank of Ethiopia, West Region

Abstract

Development banks are state-backed financial institutions that are concerned with the provision of long-term loans to not only profitable projects but also to socially beneficial ones. This study was conducted on the Determinants of loan repayment; a Case of Development Bank of Ethiopia, West Region. The main objective of this study was to identify and analyze the determinants of loan repayment in DBE, West Region. The study was applying mainly primary and secondary data. The primary data were collected from 104 selected borrowers through questionnaires and interview with staffs and bank managers. For sample selection, stratified random sampling was used where borrowers stratified based on their loan status. The binary logistic model was used to identify the determinants of loan repayment of borrowers. The characteristics of borrowers, factors in the side of lender institution, project and loan related factors and the other external factors were analyzed through descriptive statistics such as frequencies, percentages, mean, and standard deviation. Educational qualification of borrowers, marital status, and proper loan appraisal, grace period of the project, timely loan disbursement, and form of loan disbursement were influence on loan repayment significantly and negatively. Based on the analysis, the researcher is recommended that to the bank to undertake proper loan appraisal, disbursing loan at the right time , adjusting grace period based on the nature of projects and the difficulties they faced to have good loan repayment.