Assessment of Loan Repayment Performance: in Case of Awash Bank in Sikela Branch

COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE
ASSESSMENT OF LOAN REPAYMENT PERFORMANCE:
IN CASE OF AWASH BANK IN SIKELA BRANCH
BY:
TSEGAW WENDIE
ID NO: RBE/1222/11
ADVISOR: Yared B. (MSc)

August 2021
ARBAMINCH, ETHIOPIA
TABLE OF CONTENTS
Contents
Pages
Table of Contents
CHAPTER ONE: INTRODATION.........................................................................................1
1.2 Statement of the Problem.................................................................................................1
1.3. Research Questions.........................................................................................................2
1.4 Objective of the Study.....................................................................................................2
1.5. Significance of the Study................................................................................................3
1.6. scope of the Study...........................................................................................................3
1.7. Organization of the Study...............................................................................................3
CHAPTER THREE: RESEARCH METHODOLOGIES.........................................................4
3.1. Research Design.................................................................................................................4
3.2 Research Approach..............................................................................................................4
3.3. Target Population...............................................................................................................4
3.5 . Data Type and Sources....................................................................................................4
3.6.Methods of Data Collection..............................................................................................5
3.7. Methods of Data Analysis and Presentation.....................................................................5
CHAPTER ONE: INTRODATION

1.1 Back ground of the Study
. Loan is a debt provided by one entity (organization or individual) to another entity at an
interest rate, and evidenced by a note which specifies, among other thing, the principal
amount, interest rate, and date of repayment. A lone entail the reallocation of the subject
initially receives or borrows an amount of money called the principal from the lender and is
obligated to pay back an equal amount of money to the lender at a later time. The lone is
generally provided at a cost referred to as interest on the debt which provides an incentive for
the lender to engage in the loan. In a legal loan, each of these obligations and restriction is
enforced by contract, which can also place the borrower under additional restriction known
as loan covenants. This study will be focus on the provision of the loan has increasingly been
regarded as an important tool for raising the income of urban as well as the rural population
mainly mobilizing resource to more productive uses. As development takes place, one
question that arises is the extent to which loan can be offered to the private sector to facilitate
their taking advantage of the developing entrepreneurial activity (Oyatoya, 1983).
The strategic goal and objectives are based on the aspiration of;-Vision;-Top be the first
choice world class bank. Mission;- To provide innovative, competitive and diversified
banking service accessible to the society with qualified and committed staff in a profitability
and responsibility manner;-Our core values;-
A -Accessibility’s.
W -Wisdom.
A- Accountability.
S -Socially Responsibility.
H -Honesty (www.awash bank.comwebsite)
Loan repayment is the act of paying back money in maturity previously borrowed from the
lender. Repayment usually taken the form of periodic payments that normally includes par
principal plus interest in each payment (Alemut; 20002). Loans taken from credit institutions
vary from country to country, region to region, sector to sector.
However, credits of developing countries were found to share one common characteristic
suffer from a considerable amount of default rate (the amount of loans not collected on
current and past due loans for the reference period (Solomon, 2006).Lending institutions are
faced with three major problems in the course of under taking credit activity. A (to ascertain
what kind of risk the potential borrower is (adverse selection).B ( to make sure the borrower
will utilized the loan properly once made, so that he would repay it (moral hazard). C (to find
the method force the borrower to repay the loan if the borrower is reluctant to do so
(enforcement).Banks in many developing country hold a truly alarming volume in
nonperforming assets As a private owned bank, Awash bank of arbaminch branch features
the same problem could regard to collection of loan from borrowers. Therefore, this study
pinpoints loan repayment performance of client in awash bank (in the case of arbaminch
branch).
1.2 Statement of the Problem
Loan taken from banks vary from country to country, region to region, sector to sector; but
most banks in developing countries is found to share common characters. They are suffering
from considerable amount of default rate (the amount of loans not collected on current and
past due for the reference period) (Donald & Koch, 2006).
Today the role of the private sector in economic development of the country is highly
understood. Under the current government, the previous credit restrictions and discrimination
were lifted together with the permission of the entry of private banks in the financial market
(Abraham, 2002)
Differences between promised and actual repayments on loans are the result of uncertainty
concerning the borrower's ability or willingness to make the repayments when they are due
which creates the risk of borrowers default (Piscke, 2006).Recommend that the banks should
screen the borrowers and select the good borrowers from the bad ones and monitor them to
make sure that they use the the loan for the intended purpose. This is important to make sure
the borrowers can pay back their loans. Credit risk evaluation is a complex process, which
implies a careful analysis of information regarding the borrower in order to estimate the
probability that the loan will be regularly rapid (Vigano,2009)
Berhanu(2005)Studied on the determinants of loan repayment performance of farmers in

North Gonder, Ethiopia. According to his finding land holding size of the family, agro-
ecology of the area, total live stock holding, sources of credit and income from off-farm
activities.
As mentioned above ,various studies were conducted on the determinants of loan repayment
performance. Most of these studies are focused on the credit associated with agricultural
activities and they identified the socio-economic factors that affect the loan repayment rate of
rural house hold based on taking sample from the beneficiaries. This study therefore tries to
narrow the research gap paying attention to loan related and institutional factors (credit term,
supervision, collateral, credit monitoring, and loan size) to investigate the causes for the
existence of non performing loans based on sample from employees in awash bank of
Ethiopia Arba minch branch.
1.3. Research Questions

The study would be answering the following questions:
 What are the incentive mechanisms used by the bank to motivate clients who borrowed
repeatedly?
 What are the difficulties and challenges faced by lenders during the repayment process?
 What are the roles of collateralized lending on repayment rate performance?
1.4 Objective of the Study

1.4.1. General Objective of the Study
The general objective of this study would be to assess loan repayment performance of the
borrowers financed by awash bank in Arbaminch branch.
1.4.2. Specific Objectives of the Study

 To evaluate the incentive mechanisms used by the bank to motivate clients who
borrowed repeatedly.
 To identifiy the difficulties and challenges faced by lenders during the repayment
process.
 To assess the roles of collateralized lending on repayment rate performance.
1.5. Significance of the Study
There are a number of socio economic and lenders credit management performance for loan
repayment rates. Analyzing the appropriate solutions is essential to expand the activities of
these financial sectors in a sustainable manner. Besides, it may also be used an interested
researchers for conducting further study. Finally, the researchers would also gain knowledge,
experience, and satisfaction from the result of this study. It would help the bank to identify
the major characteristics that distinguish credit worthy borrowers and defaulters. So, it
conducts accordingly for future screening purpose
1.6. Scope of the Study
The scope of this study has been focused on assessment of loan repayment performance in
awash bank of arbaminch branch. Because of the broad nature of the loan, the study carryout
on some types of loan terms (short, medium and long term loan) repayment performance of
bank with customer. The study would focus collect data on attitude and performance level of
some of the clients and employees of awash bank in arbaminch branch.
1.7. Limitation of the Study
In conducting this study the researchers faced mainly the following obstacle. Such as,
unwillingness of customer to answers the questionnaire, lack of trust or confidentiality of
information particularly on some questioner paper full filled by carelessness because of their
unwillingness and coordination between researchers to conduct the study. In addition to this
lack of time management, lack of available organized data conducting research on the side of
researcher.
1.8. Organization of the Study
The study would contain five chapters. The first chapter deals, background of the study, ,
statement of the problem, objective of the study, research questions, significant of the study, ,
scope of study and organization of the paper. The second chapter deals about review of
literature that shows the theoretical and empirical aspect of loan. The third chapter deals with
research methodology and the fourth chapter deals with data analysis and presentation.
Finally, the last chapter deals about conclusion and recommendation.
CHAPTER THREE: RESEARCH METHODOLOGIES

3.1. Research Design
The researcher used the descriptive types of research design to describe the situation what the
researcher actually observed. The reason for selecting descriptive research design, it provides
adequate description and explanation for readers easily understood
3.2 Research Approach

To conduct this study researcher could be used mixed research approach. This approach used
when the researcher combined the element of qualitative and quantitative research approach.
Qualitative research approach is carried out when the researcher wishes to understand mining
and to understand experience, ideas, beliefs and values. Quantitative research approach used
to provide numerical measurement and analysis of the magnitude and extent of the problem.
3.3. Target Population
Target population was the set of all elements that belong to a certain defined group to be
studied. The target population of this study focuses on all permanent employees of awash
bank in arbaminch branch.
3.4 .Sample and Sampling Techniques

The non-probability type of sampling; that is judgmental sampling is used in this study. The
reason for using this type of sampling is because it is purposive, less costly and less time
consuming as well as more representative because it is selective, it helps to include units who
are knowledgeable about the topic under the study and then to obtain the intended
information. From the 30 employees the researchers was taken 10 employees
3.5. Data Type and Sources

The researcher employed both primary and secondary data. Primary source of data could be
collected through questionnaire and interview and Secondary source of data were collected
from internet, book, journals, manuals and other related materials.
3.6. Methods of Data Collection

The primary source of data was collected through distribution of questionnaire and interview
with managers and employees of the bank. The data collection tool is used to gather data
from sample respondents are open ended (to formulate his own answer) and closed ended
(pick an answer from a given option) questionnaire. Questionnaire is selected because it
helps to gather data with minimum cost faster than any other tool. The secondary source of
data is collected through reading different written materials such as books, internet, journal,
manuals and other related materials.
3.7. Methods of Data Analysis and Presentation

After collected the raw data, the researcher was organized it to make it suitable for data
analysis and presentation. Table and percentage methods are used in analyzing and present
the collecting data.

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COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

ASSESSMENT OF LOAN REPAYMENT PERFORMANCE:

IN CASE OF AWASH BANK IN SIKELA BRANCH

ADVISOR: Yared B. (MSc)

1.2 Statement of the Problem.................................................................................................1

1.3. Research Questions.........................................................................................................2

1.4 Objective of the Study.....................................................................................................2

1.5. Significance of the Study................................................................................................3

1.6. scope of the Study...........................................................................................................3

1.7. Organization of the Study...............................................................................................3

CHAPTER THREE: RESEARCH METHODOLOGIES.........................................................4

3.1. Research Design.................................................................................................................4

3.2 Research Approach..............................................................................................................4

3.3. Target Population...............................................................................................................4

3.5 . Data Type and Sources....................................................................................................4

3.6.Methods of Data Collection..............................................................................................5

3.7. Methods of Data Analysis and Presentation.....................................................................5

CHAPTER ONE: INTRODATION

1.2 Statement of the Problem

Berhanu(2005)Studied on the determinants of loan repayment performance of farmers in

1.3. Research Questions

1.4 Objective of the Study

1.4.2. Specific Objectives of the Study

1.6. Scope of the Study

1.7. Limitation of the Study

CHAPTER THREE: RESEARCH METHODOLOGIES

3.2 Research Approach

3.4 .Sample and Sampling Techniques

3.5. Data Type and Sources

3.6. Methods of Data Collection

3.7. Methods of Data Analysis and Presentation

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