Factors Affecting Non-Performing Loans in Commercial Banking Sector: A Comparative Study of Public and Private Banks A Case Study of Commercial Bank of Ethiopia and Dashen Bank District in Southern Region of Ethiopia

Abstract

The study aims to identify factors affecting non-performing loans in commercial banking sector; in public and private banks of the study area. To achieve the “general and specific objectives” the study was look institutional and customer specific factors affecting NPLs and the remedial practices can be implemented to reduce the level of NPLs. This study also used descriptive research design and quantitative research approach were used and the primary source of data were collected from 52 credit staff members from CBE and Dashen banks District in Southern Region. The sampling techniques were purposive sampling method. However, the sample was selected from credit staff only. For data analysis, descriptive statistics including mean, std. deviation, frequency and percentages were used. The results of the study indicated Bank specific factors include Bank size and performance, credit size, poor credit assessment, poor credit terms, lack of aggressive credit collection system, inadequate nature of collateral were identified as bank specific factors affecting NPLs. On the other hand unwillingness of borrower to pay back loan, customers funds diversion for unexpected purpose were identified as customer specific factors affecting NPLs. Hence, to reduce the occurrence of loan default it is suggests the stakeholders in the credit system including the banks and government must implement policies that will facilitate the minimization of the internal as well as external factors that precipitate NPLs.

Keywords: Bank Specific Factors, Customer Specific Factors, Non-Performing Loans

DOI: 10.7176/RJFA/10-3-07