The Determinants of Loan Repayment Performance: Case Study of Development Bank of Ethiopia, Nekemte District

This study aims to identify the determinants of loan repayment performance in Development
Bank of Ethiopia, Nekemte District western part of Ethiopia. To address the research objective,
samples of 113 loans were taken from Development Bank of Ethiopia Nekemte District. Out of
which 40 of them were performing and the rest 73 were non-performing loans. Stratified
sampling method was used as per the indicative of the borrower’s loan status. Both primary
and secondary data were used; the data gathered were analyzed using descriptive and
inferential method of analysis. A descriptive statistics frequency table, t-test, chi-square test
and bar graph were used and inferential statistics logistic regression (binary logit) was the
particular model used to identify the determinants of the repayment performances. The logit
result indicates; educational level of borrowers; credit experience of the customer, loan size
permitted, equity, grace period, follow-up, weather and stability conditions determine the loan
repayment performances positively and statistically significant factors. Other variable sector of
the loan was negatively related and statistically significant factor affecting the loan repayment
performances. The study recommends the bank to intensify its project monitoring and follow-up
work in order to make responsive decisions and provide technical assistance for its financed
projects, select more experienced customers/enhance the capacity of its customers through
provision of continuous training, allocate sufficient loan amount up on the feasibility and
increase debt-to- equity ratio. Finally, external factors such as weather and stability conditions
should be under consideration in the credit policy of the bank before financing the loans to
minimize risks of default.