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