Loan Repayment Performance in Omo Bank in Dawuro Zone of South West Ethiopia: Case of Kechi and Tocha Branch’s

Abstract

Omo Bank is one of the upcoming new private Bank in Ethiopia, Omo Bank is one of Ethiopia Banks which has made its institutional transformation from microfinance institution to fully commercial Bank. The objective of this study is to analyze and identify the determinants of loan repayment performance of borrowers in the case Omo Bank. Primary data was collected from a sample of 256 borrowers selected from Tocha and Kechi branches of OB. A probability sampling technique was employed to selected participants of the questionnaire survey. The survey questionnaires collected the relevant data of borrower’s socio-economic factors and the lender institution related factors. In addition, interview was conducted with the branch manager and two customers’ service employees concerning the institution trend of the nonperforming loan and legal issues concerning repayment. Further the study analyzed secondary data related with the trends of loan repayments. Quantitative data was edited, coded and entered into a computer and processed using SPSS Version 26.0 statistical software. The empirical analysis was conducted using both descriptive statistics and econometric regression analysis model. The results of secondary data analysis indicated that the trend of the nonperforming loan in Omo Bank of Tocha and Kechi branches has been highly risky during the five years (2019-2023).This study indicates that the rate of respondents who responded to the survey was 91.1%, which indicates that a large number of respondents participated in the data collection process. The study employed binary logistic regression for data analysis. The binary logistic econometric regression model was applied for analyzing the loan repayment performance in 11 explanatory variables included in this study. The results of the binary logistic model show that age, family size, loan size, a distance of borrowers from the institution, suitability of repayment period, loan diversion, the market value of the project, and loan training were important in influencing loan repayment performance of the borrower. The bank should adjust the important and significant factors affecting the probability of return so that it does not affect future operations. The same of the reverse was enhancing loan repayment performance.