Determinants Of Borrowers Loan Repayment Performance

Abstract

Nowadays the sources of finance for almost all businesses, sole or partner or corporation, in addition to the owners’ contribution is debt from financial institutions. It is needless to mention that banks take the lion share in that regard. While lending, the creditors may face problem of non-performing loans that costs many financial institutions fortunes in bad debts. Particularly, because of lack of information on credit defaulters, many credit officers and managers are likely still lend out funds that may never be recovered. The loans taken by the businesses are obviously expected not only to provide returns to the particular businesses, but also to boost the economy in general. However, that may not be true due to various reasons. In lieu of that this study tried to identify some of the factors that lenders could look out for and the foresight they would need to have in order to avoid default of credit using primary and secondary data from eight commercial banks at Adama. Purposeful and convenient sampling techniques were used to select borrowers from the respective banks and questionnaires were administered to the whole credit staff of the banks. The descriptive analysis result revealed that lenient credit monitoring or follow-up, business slow down or bankruptcy, fund diversion and family liquidation had impact on repayment performances of borrowers. However, credit analysis and lending interest rate had no impact comparatively. The secondary data about borrowers were analyzed using logistic regression and the result showed that age of borrowers, education level of borrowers, length of experiences in borrowing, and loans type were found to have statistically significant impact on repayment performances. However, sex, marital status and the type of bank the borrowers used had no statistically significant impact on repayment performance of borrowers. In lieu of that the banks are recommended to give due attention to the credit processing and approval processes along with the borrowers’ related aspects including the nature of their businesses they run ahead of loan disbursement. Key Words: Repayment performance, logistic regression, Commercial banks, Adama