Determinants of Agricultural Project Credit Default in Commercial Bank of Ethiopia: A Study in Jimma District

Abstract

The main aim of this study is to investigate the determinants of Agricultural Project Credit Default in Commercial Bank of Ethiopia, Jimma District. The study focused on bank specific factors, borrower specific factors and external factors that determine agricultural project credit default. In the study both qualitative and quantitative approach were adopted. The total number of study population was seventy seven employees those who are directly or indirectly participated in credit processing and the sample size was sixty five employees. This sample size was determined according to Israel (2009), the simplified formula for sample size determination at 95% confidence level. Using Likert scale structured questionnaire, a survey was conducted on credit performers of the bank who directly or indirectly involved in agricultural project credit process commencing from potential credit customer recruitment to loan settlement or loan recovery. To check for the reliability of the data, the researcher has checked for the data reliability test by using Cronbach’s-Alpha and all the data were reliable to use. Then, the researcher has checked the correlation between dependent variable and explanatory variables by using correlation matrix and confirmed that there correlation between dependent and independent variables. The test of normality has undertaken to determine the regression model by using Kolmogorov-Smirnov, Shapiro-Wilk as well as Histogram and the test has shown that the residuals were not normally distributed around the fitted lines. Hence, the researcher has used Ordinal Logit Regression Model rather than linear regression model after checked for model fittings/Goodness-of-fit by using Pearson and Deviance test of goodness-of-fit and confirm that the model is well fit. The findings of the study indicated that the credit policy and procedural attributes of the bank, credit appraisal, and project credit management, character of the borrower, economic environment, political environment and infrastructure have significant impact on agricultural project credit default while credit origination, workout loan and banking industry have insignificant impact on credit default. Based on the findings the researcher has given policy implications to the concerned by body.