FACTORS AFFECTING LOAN REPAYMENT PERFORMANCE OF ENAT BANK S.C BORROWERS IN BAHIR DAR DISTRICT

Abstract

Introduction: Credit has recognized as one of the important financial service that contributes to the success of a business venture. Their success and performance chiefly depends on the effectiveness of their credit management systems. The main problem of poor performance of Banks is high rate of non-repayment of loans. Objectives: The objectives of this study was to examine factors affecting loan repayment performance among borrowers of ENAT Bank of Bahir Dar District. Methods: To conduct this research the explanatory research design complemented with a cross sectional data was employed, to achieve the objectives of the study both primary and secondary data were collected from 11 branches selected using censes method. Regarding populations a total of 127 individual borrowers were randomly selected as a sample from the 11 branches. Both the descriptive statistics / SPSS software and logit model was utilized in order to identify the factors affecting loan repayment performance of borrowers of ENAT Bank. Tables, figures and charts were used to classify and present the major findings of the study. Result: From a total of 129 questionnaires distributed to respondents, appropriately 122 have been filled and returned with 94.6% response rate. The analysis of the study shows that out of the sixteen independent variables the eleven variables such as educational level, loan diversion, purpose of borrowing, loan type, interest rate, market availability, follow up, payback period, awareness creation, others source of income and income from activities made a statistically significant with the p value of less than 0.05. However, the remaining explanatory variables namely, sex, age, marital status and dependent family size had no significant effect on the probability of being defaulter. While comparing the effects of the significant explanatory variables incorporated in the study, borrowers who have better educational level are more likely to be successful paid loan within due date. Conclusion and recommendation: Among other factors Loan diversion, interest rate, market availability and payback period have negative relationship with loan repayment performance of the borrowers. Therefore, it is recommended that Policy makers need to consider the problems and the institution should give attention to continuous follow up on proper loan utilization.