Assessment of causes of Non-performing Loans in Commercial Bank (The case of Lion International Bank S.C)

Abstract

This study intends to assessment of nonperforming loans. The mixed research approach was adopted for the study. The survey was conducted with professionals engaged in Lion International Bank holding different positions and its borrowers using a self administered questionnaire. Accordingly the study explores the problem in an interpretative view using a descriptive approach adopted the survey study type of research in which a sample from the target population used for the study. In addition, based on non-probability sampling method, 120 respondents from the 20 branches sampling group/units who have direct relationship with credit in Lion International Bank S.C in Mekelle city. The study found that weak risk assessment and unsound lending practices, lack of focused loan monitoring and follow-up, and fund diversion as the major factors that contribute to loan default. The study suggest that Bank should put that proactive follow-up and monitoring system to monitor loan performance and check continued viability of operations, clear policy framework and working procedures that effectively address the issues of KYC, Develop and put in place framework for the entire credit management process and set objectives, standards and parameters to guide credit personnel in the overall credit processing, Provide training and development to employees involved in credit operations to enhance the aptitudes and abilities of every staff.