DETERMINANTS OF LOAN DEFAULT OF BANK BORROWERS IN ETHIOPIAN BANKING INDUSTRY: IN CASE OF ABAY BANK GONDAR CITY ADMINISTRATION

Abstract

The purpose of this study is to investigate major factors that contribute loan default in the case of Abay bank Gondar city. To this end descriptive and explanatory research design and mixed approach were selected for use in the study. Accordingly, primary data was collected from sample of respondent borrowers (267 in number selected by census sampling) of Abay bank using closed ended questionnaire. The questionnaire items were adopted from previous studies conducted on the issue. The collected data was analyzed statistically using SPSS version 27. Both descriptive statistics that include frequency and percentage distribution mean and standard deviation as well as inferential statistics that involve correlation and regression were to summarize and interpret the research data systematically. The results of data analysis indicated that loan default is relatively high (both actual and potential) such factors like borrower (beta weight .108, significant at p=.012), lender (beta weight .148, significant beyond p=.00) and loan characteristics (beta weight .3significant beyond p=.00) as well as current political (beta weight .159, significant beyond p=.00) and economic conditions (beta weight .39, significant beyond p=.00) found to have significant contribution to it accounting 76.4% variance of loan default. Of which current economic conditions and loan related factors were found to have more effect compared to other factors considered in the study. Based on this findings stakeholders involved were suggested to decrease loan default by taking appropriate measures step by step that is those measures related to lender and loan characteristics to be taken by the bank management body and borrower related characteristics by clients. Further research directions by including more banks and more geographical area were also recommended.