MEKELLE UNIVERSITY

COLLAGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

ASSESMENT OF CREDIT COLLECTION MANAGEMENT IN LION

INTERNATIONAL BANK (CASE STUDY ON ADISHUM DUHN
BRANCH)

SENIOR ESSAY, SUBMITTED FOR THE PARTIAL FULFILLMENT

OF THE REQUIREMENTS IN AWARD OF BACHLOR OF ART (BA)
IN ACCOUNTING AND FINANCE

BY: TESSFAYE MENGESTU

ID No: CBE/UR/165861/2006

ADVISOR: ABRAHA TEKLE BIRHAN (Msc)

JUNE, 2016

MEKELLE, ETHIOPIA
 Acknowledgement
First of all I would like to deserve a great gratitude to Allah for giving me the endurance
and tolerance all through the way.
Next I would to express my deep appreciation and gratitude to my advisor AbrahaTekle
birhan (MSC) for his patience and dedication in providing his continues valuable and
constructive comments throughout the preceding of this year.
I want to express my heart full thanks to Lion international Bank of Ethiopia employees
for their full-fledged assistance and cooperation in distributing, answering and collecting
the questionnaires and providing the necessary materials for this study.
I also indebted to my friends, parents for their moral and financial support during the
study.

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 Abstract
This paper aimed at assessing the credit collection management of Lion international
bank in adishum duhn branch. To assess some procedure related to granting loan, to
evaluate how the bank evaluates the credit worthiness of its borrowers. The investigator
used descriptive method of approach, and also census sampling techniques was carried
out. The study was accomplished primary and secondary data was used. The findings of
the study showed many strengths and weakness of the branch regarding credit collection
management practice. Among the weaknesses identified in this study include the bank
does not regularly follow up the customers that are the reason for customers being
default in repaying the loan, the bank set the same interest rate for all types of loan.
Among the strength identified was the bank grants mostly short term loans to minimize
collectability risk. Based on the weakness identified the bank was recommended to follow
up regularly to decrease the default rate of the borrowers, and the bank has to set
different interest rate depends on the loan size of the debtors. In conclusion when we
generally consider the credit collection management of Lion international bank going to
be good and mood, this would justify by using efficient method of customer screening
techniqu

Table of Contents

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Acknowledgement........................................................................................................................................i
Abstract.......................................................................................................................................................ii
CHAPTER ONE..........................................................................................................................................1
1.INTRODUCTION....................................................................................................................................1
1.1. BACK GROUND OF THE STUDY..............................................................................................1
1.2. STATEMENT OF THE PROBLEM............................................................................................1
1.3. OBJECTIVES OF THE STUDY......................................................................................................2
1.3.1. GENERAL OBJECTIVE...........................................................................................................2
1.3.2 SPECIFIC OBJECTIVE.............................................................................................................2
1.4. SIGNIFICANCE OF THE STUDY...............................................................................................2
1.5. SCOPE AND LIMITATION OF THE STUDY...............................................................................3
1.5.1. SCOPE OF THE STUDY..........................................................................................................3
1.5.2. LIMITATION OF THE STUDY...............................................................................................3
1.6. METHODOLOGY OF THE RESEARCH...................................................................................3
1.6.1. RESEARCH DESIGN AND STRATEGY.......................................................................3
1.6.2. DATA TYPE AND SOUURCE.........................................................................................3
1.6.3. METHOD OF DATA COLLECTION.............................................................................3
1.6.4. METHOD OF DATA ANALYSIS....................................................................................4
1.7 . ORGANIZATION OF THE PAPER.....................................................................................4
CHAPTER TWO.......................................................................................................................................5
2. REVIEW OF RELATED LITERATURE...........................................................................................5
2.1. MEANING AND DEFINATION OF CREDIT............................................................................5
2.1.1.MEANING OF CREDIT............................................................................................................6
2.1.2.CREDIT CREATION.................................................................................................................6
2.2. TYPES OF CREDITT......................................................................................................................6
2.3. FORMS OF CREDIT.......................................................................................................................7
2.4.ATTRIBUTES OF CREDIT INSTRUMENTS.................................................................................8
2.5. CREDIT CONTROL........................................................................................................................9
2.5.1. OBJECTIVE OF CREDIT CONTROL.....................................................................................9
2.5.2. METHODS OF CREDIT CONTROL.....................................................................................10
2.6. CREDIT RISK................................................................................................................................13
2.6.1. NATURE OF CREDIT RISK..................................................................................................13

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 2.6.2. CREDIT RISK AND COLLECTION MANAGEMENT........................................................13
2.6.3. DEFICIENCIES IN CREDIT RISK MANAGEMENT...........................................................14
2.6.4.PRINCIPLES IN CREDIT RISK MANAGEMENT................................................................14
2.6.5.METHOD OF REDUCIN CREDIT RISK...............................................................................15
2.7.CREDIT POLICY...........................................................................................................................15
2.7.1. CREDIT POLICY IN ETHIOPIA.......................................................................................15
2.8.SETTING THE COLLECTION POLICY.......................................................................................16
2.8.1.THE NEED FOR CREDIT MANAGEMENT..........................................................................16
CHAPTERTHREE....................................................................................................................................17
3. METHODOLOGY OF THE STUDY...................................................................................................17
3.1.RESEARCH DESIGN.....................................................................................................................17
3.2. METHOD OF DATA COLLECTION...................................................................................17
3.3. POPULATION AND SAMPLE SIZE............................................................................................17
3.4. METHOD OF DATA ANALYSIS AND INTERPRETATION...........................................18
CHAPTER FOUR.....................................................................................................................................19
4. DATA ANALYSIS AND INTERPRETATION...................................................................................19
4.1.DATA ANALYSIS BASED ON PRIMARY DATA......................................................................19
4.1.1.DATA ANALYSIS BASED ON QUESTIONER....................................................................19
4.1.2.DATA ANALYSIS BASED ON INTERVIEW...........................................................................28
4.2. DATA ANALYSIS BASED ON SECONDARY DATA...............................................................30
CHAPTER FIVE.......................................................................................................................................34
5. CONCLUSION AND RECOMMENDATION.....................................................................................34
5.1.CONCLUSION...............................................................................................................................34
5.2. RECOMMENDATION..................................................................................................................35
Reference...................................................................................................................................................36
APPENDIX...............................................................................................................................................37

List of tables

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 Table page

Table4.1: analyze the age structure of respondents………………………… 19

Table4.2: To summarize sex structure of respondents:……………………….. 20

Table4.3: summarizing the educational level of respondents:……………….. 20

Table 4.4: summarizing work experience of employees……………………….. 21

Table4.5: summarizing the presence of loan in lion bank………………………….. 21

Table4. 6: Summarizing the types of loan term mostly customer use……………… 22

Table4.7: summarizing the existence of credit collection report……………….. 22

Table4.8: who is the debtor contract first to request a loan?................................. 23

Table4.9: does the bank asses borrowers past financial history credit

worthiness and perform in detail before extending the loan?........................... 24

Table4.10: when the borrower faces a certain problem and unable

to pay the loan, what mechanism do you apply in order the loan to be collected…… 24

Table4.11: which kind of screening techniques that the bank

uses to evaluate credit worthiness of borrowers? ……………………………… 25

Table4.12: which type of loan disbursement is your bank use for borrowers?.......... 26

Table4.13: does your bank evaluate collateral before granting a loan?........................ 26

Table4.14: does your bank permitting over draft for the customers? ……………….. 27

Table4.15: how your bank set the same interest rate for different amount of loan?....... 27

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 CHAPTER ONE

1. INTRODUCTION
1.1. BACK GROUND OF THE STUDY
A banking institution various types of service are providing among those credits is one of
the most important core businesses of most banks. The word credit itself is derived from
the Latin word“credere” to believe to put confidence in some one trust same one( Conant
1899, baltnsperger 1987)
Bank is financial institution that are established for lending , borrowing, issuing,
exchanging, taking deposit, safe guarding or handling money under the law and
guidelines of respective country. Among their activities credit provision is the main
product which bank provides to potential business entrepreneur as main source of
income. While providing credit as main source of income bank takes in to account many
considerations as factor of credit collection management which helps them to minimize
the risk of default that result in financial distress and bankruptcy. This is due to the
reason that while a bank providing credit they are exposed to risk of default( risk of
interest & principal payment) which needs to be managed effectively to acquire level of
loan growth and performance (bass, 1991)
In competitive environment more lines of business which need huge environment are
being opened. Some of this investment is financed through commercial bank loan. With
this respect bank play major role in the overall economy development of the country.
However, in this process of extending credit to customers. A bank should have a way
securing its borrowers so that it will minimize the risk of default (Bas, 1998) fundamental
of risk 3rd edition).
1.2. STATEMENT OF THE PROBLEM
Credit collection management is one part of the bank service. But it has wide
approaches. There is high demand of borrowing money used for different
purposes.Investors, individuals and government itself needs money for their own
purposes. Most of the time the economic units needs to satisfied the banks. The
previous studies focused their attention only on credit collection management of lion

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 international bank of Ethiopia. Thus it focused on determining efficiency and
effectiveness of assessing credit collection of the company. Thus study was try to
investigated the problem of lion international bank due to the fact that some of loans
and advances grant to its users turned to be bad loans. Because level o loans that grant
by lion international bank to its uses to be bad loans (probability that loan returned by
the customer is low) is increased year to year.
Therefore it is necessary to raise the following research questions to identify the
problems.
1. How the bank evaluated the credit worthiness of the debtors?
2. What are the criteria used by lion international bank credit worthiness of the
borrowers?
3. What are the causes of customer in ability to pay the loan to the bank?

1.3. OBJECTIVES OF THE STUDY

1.3.1. GENERAL OBJECTIVE

The main objective of the study was to examine and assess the credit collection of management
procedures and performance in the lion international bank in adishum duhun branch

1.3.2 SPECIFIC OBJECTIVE

1. To assess the insolvency of the customer or the borrowers.
2. To identify the criteria used to evaluate and estimate the collateral used as pledge
for granting loan.
3. To identify the causes of customers default in repaying loan

1.4. SIGNIFICANCE OF THE STUDY

The study on assessment of credit collection management on lion international bank adishum
duhn branch has a vital role. This role to contribute the organization i.e. banks is to get interest
and to attract the new customers and to satisfy the existing customers because it provides
information that was enable effective measures to be taken to improve the performance of credit
collection process of lion international bank adishum dihun branch. This study is useful in

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bringing in to light the strong and weak point in managing credit risk. The paper was mentioned
several important ideas, which is relevance for the researcher.

1.5. SCOPE AND LIMITATION OF THE STUDY

1.5.1. SCOPE OF THE STUDY

Lion international bank is privately owned Share Company which is currently has 60
branches both in Addis Ababa and regional towns.This study are focused on
assessing credit collection management in lion international bank adishum duhn
branch.

1.5.2. LIMITATION OF THE STUDY

There are some limitation that are expected to face on this research work the
following are among some limitations

1. Because of far from the campus in my study area is difficult to study effectively.
2. The short span of the time for interview collecting and analyzing of questions of
the data for final report.
3. Lack of skill and experience of the researcher about the research finding.
4. There was shortage of time when the researcher does the research there was some
tests and quizzes.

1.6. METHODOLOGY OF THE RESEARCH

1.6.1. RESEARCH DESIGN AND STRATEGY

The study wasconducted on credit collection management practice in lion

international bank. The research is more of descriptive type of research design is fall
in use. That is descriptive research method is easy to describe what the researcher can
do.

1.6.2. DATA TYPE AND SOUURCE

The necessary data was collected from both primary and secondary data
(source). The primary source was collected through questionnaire and
interview from employees of lion international bank in adishum duhn branch.
1.6.3. METHOD OF DATA COLLECTION

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 The data was collected mainly from credit collection management department
of lion international bank. Necessarily primary data was collected through
interview and questionnaire of lion international bank employees and
secondary data was collected from internet, and relevant written documents.
1.6.4. METHOD OF DATA ANALYSIS
The data gather interview and questioner method and try to analysis
descriptive methods that are percentage and appropriate explanation of the
table.
1.7 . ORGANIZATION OF THE PAPER
The paper contains five chapter the first chapter is introduction which include
background of the study, statement of the problem, objective of the study,
significance of the study, scope and limitation of the study.
The second chapter deals with literature review, the third chapter consists of
methodology of the study, the fourthchapter is data analysis and interpretation, and
The final chapter is conclusion and recommendation of the study.

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 CHAPTER TWO
2. REVIEW OF RELATED LITERATURE

2.1. MEANING AND DEFINATION OF CREDIT

Banking signifies some form of dealing in money and securities. It is essentially the business of
playing between the lenders and borrowers. It is middling and intermediation function between
the saving surplus and saving deficit economic units within the society ( B.M.L.all Nigam, 2988)

In the extension of bank accommodation, nothing is more significant than the ability and
character of the borrowers. Practical bankers theoreticians alike suggest that safest and the most
dependable security that could be obtained is integrity and business like dealing of customers. It
is not the tangible collateral to generate earnings and maintain solvency. This measurement of
the overall standing of the firm and its future is what is called “credit analysis” or “credit
investigation” it is in effect financial analysis conducted by supplier of funds with a view to
finding the position, progress, and prospects of a borrowers (B.MLall Nigam, 1988).

The business of banking is credit and credit is the primary basis on which banks quality and
performance are judged studies of banking crises show that the frequent factors in the failure of
banks has been poor loan quality. The credit risk management process of banks is believed to be
a good indicator of a quality of the bank’s loan portfolio (HR Machiraju, 2003)

Credit risk covers all risks related to a borrower not fulfilling his obligations on time. Even
where assets are exactly matched by liabilities of the maturity, the same interest rate conditions
and the same currency, the only on the balance sheet risk remaining would be credit risk.

Credit risk exposure is measured by the current mark to market value. The magnitude of credit
risk depends of the likelihood of default by the counter party, the potential value of outstanding
contracts, and the extent to which legally enforceable netting arrangements allow the value off
setting contracts with that counter party to be netted against each other or the value of the
collateral held against the contracts. (HR. Maharaja, 2003)

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2.1.1.MEANING OF CREDIT
The word credit is derived from Latin word(credo) which means I believe to the creditors
believes that the debtors will return the loan and so decides to give the loan. Advancing credit or
loan essentially decides to give the loan, confidence, character, capacity, capital and collateral of
the debtor. It is a medium of exchange to receive money or goods on demand of the some future
date. R.p kent defines credit as the right to receive payments of the obligation to make payment
on demand of some future time on account of the immediate transfer of goods (R.R Paul, (1996)

2.1.2.CREDIT CREATION
A bank differsfrom other financial institutions because it can create. Banks have the ability to
expand their demand deposits as multiple of their cash reserves. This is because of the fact that
demand development of the banks serve as the principal medium of exchange, and in this way
the banks manage the payments system of the country.

In short the ability of banks to expand the deposits makes them unique and distinguishes them
from other non-banking financial institution. The whole structure of banking is based on credit.
Bank credit means bank loans and advances. Bank keeps a certain proportion of its deposits as a
minimum and lends out the remaining excess reserve to earn income. The bank loan is not paid
directly to the borrower but is only credit in this account; every bank loan creates an equivalent
deposit in the bank. Those credit creations means multiple expansion of bank deposits(R.R Paul,
1996)

2.2. TYPES OF CREDITT

There are four common division of credit.

1. Production versus consumption

Credit may extend for either production or consumption purposes. In the twentieth
century, consumption loans have grown in importance largely as a result of growing
importance of automobiles other consumer durable goods, a generation ago, bankers
tended to look askance of consumption credit.
2. Long, short and intermediate

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 Short term credit includes any period up to a year in length, intermediate credit generally
runs from one to five years and long term credit extends over five years.
3. Direct versus indirect
Originally all credit was direct. Someone lent spare money on goods directly to the
borrowers. But an important character of modern society is the financial institution which
extends credit indirectly. Funds are deposited with a saving bank, which take over the
responsibility of finding safe and profitable lending opportunities.
4. Public credit
Public credit which includes governmental units on all levels from municipal to national.
The credit extended to the public sector depends primarily on its ability to tax. Since this
ability to represent its capacity for repayment public credit like private credit, may be
long term, short term or intermediate. Like most private credit also, it may be for
production or consumption credit is not entirely clear in this area, however because most
government operation are not operated like business to make a profit.

2.3. FORMS OF CREDIT

Credit may also classify as to whether or not it is extended on the basis of formal documents
called credit instruments.

Informal credit arrangements

Some credit is handled informally with little or no actual evidence. Small sums are often lent
with only an oral promise to repay. Charge accounts involve no regular credit
instruments.Telephone and electric bills usually are paid monthly and in many other cases credit
is commonly extended to customers on a retail,whole sale or manufacturing level.

Credit instruments

They are formal documents drawn up as evidence of credit. They are of two types: promise to
pay and orders to pay. Most instruments may be transferred easily from one holder to another.
Some such as checks, used as a means of payment, almost entirely replacing coins for all but the
smallest transactions.

Promises:There are two types of promises to pay;

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Notes: which tend to be concerned with short term credit and bonds which usually involve long
term credit. This distinction, however, does not always hold. In either case we simply have an
instrument of credit which indicates that the borrower agrees (promises) to repay the sum lent
aspecified annual rate of interest and at a specific time.

Order: a credit instrument may be an order to pay is called drafts. A draft may be drawn against
persons, a corporations or a bank. The most common draft is the check.

2.4.ATTRIBUTES OF CREDIT INSTRUMENTS

The most important attributes of any financial instrument are its yield, liquidity and safety. Infact
the major functions of financial intermediaries is to provide greater liquidity and own financial
claims to depositors, for financial claims on borrowers.

Scale of economics

Credit allows mass production economics to develop. If manufactures used only retained
earnings to expand their production, many companies would never be able to expand. Extension
on of credit provides manufactures with capital to expand their production and potential profits.
Also in some industries the large the production volume, cheaper the production costs. This
means more profit for manufactures can again expand production and renew the cycle. In this
cyclical expansion pattern, credit is almost indispensable.

Regulation of the economy

Financial intermediaries, especially the Federal Reserve System are largely responsible for credit
conditions in our economy. They can encourage credit expansion or force a contraction in credit.
When inflationary pressures are strong, the banking system primarily is responsible for
containing them by putting brakes on credit easier the regulation of credit together with the
allocation of credit are the primary function of Federal Reserve System. Through its dominant
role in the credit structure the banking system carrier a formidable responsibility for regulating
the economic.

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2.5. CREDIT CONTROL
Credit control is the regulation of credit by central bank for achieving some definite objective.
Modern economy is a credit economy because credit has come to play transactions in the modern
economic system. Change in volume of credit influence the level of business activity and the
price level in the economy unrestricted credit creation by the bank by money, by pose a serious
threat the national economy. Hence, it becomes necessarily for the central bank to keep the
creation of credit under control in order to maintain in the economic system (R.R Paul, 1996).

2.5.1. OBJECTIVE OF CREDIT CONTROL

Important objectives of credit control are given below:

1. Price stability
Violent price fluctuations cause disturbances and maladjustments in the economic system
and have serious social consequences. Hence price stability is an important objective of
credit policy.
2. Economic stability
Operation of the business cycle brings in stability in capitalist economy. The objective of
credit control policy of cent fluctuations and ensure economic stability in the economy.
3. Maximization of employment
Unemployment is economically waste full and socially undesirable. Therefore economic
stability with full employment and high per capita income has been considered as an
important objective of credit control policy of a country.
4. Economic growth
The main objective of credit control policy in the under developed countries should be
the promotion of economic growth with in shortest possible time. This country generally
suffers from the deficiency of financial resources. Hence, the central banks in these
countries should solve the problem of financial scarcity through planned expansion of
bank credit.
5. Stabilization of money market

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 Another objective of central bank’s credit control policy is the stabilization of money
market so as to reduce fluctuations in the interest rates to the minimum. Credit control
should be exercised in such a way that the equilibrium in the demand and supply of
money should be achieved at all times.
6. Exchange rate stability
It can also be an objective of credit control policy. In stability in the exchange rates is
harm full for the foreign trade of the country. Thus, the central bank in the countries
largely dependent up on foreign trade, should attempt to eliminate the fluctuations in the
foreign exchange rates through its credit control policy. (R.R.paul,1996).

2.5.2. METHODS OF CREDIT CONTROL

The various methods or instruments of credit control used by central bank can be broadly
classified in to two categories.

A. Quantitative or general method

B. Qualitative or selective methods
A. Quantitative or general methods
The method used by central bank to influence the total volume of credit in the
banking system, without any regard for the use to which it is put, without any regard
for the use to which it is put; are called quantitative or general methods of credit
control.
These methods regulate the lending ability of the financial sector of the whole
economy and do not discriminate among the various sectors of the economy.
The important quantitativemethod of credit control is
i. Bank rate
ii. Open market operation
iii. Cash rate policy
I. Bank rate policy
It is the traditional method of credit control used by the central bank. The bank rate or
the discount rate is the rate at which central bank is prepared to discount the first class
bill of exchange. According to M.s palding, the bank rate is “the minimum rate
charged by the central bank for discounting approved bills of exchange.

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 Bank rate policy aims at influencing
 The cost and availability or credit to the banks.
 Interest rates and money supply in the economy.
 The level ofeconomic activity of the economy.

A rise in the bank rates makes the credit costs lies reduces the volume of credit, discourages
economic activity and brings down the price level in the economy. Similarly the volume credit
encourages as the level of economic activity and the price level.

Effects of bank rate policy

 Effects on the level of economic activity.

 No simultaneous determination of interest rates and money supply.
 Announcement effects.
 Bank rate policy during inflation and depression.
 Effect on balance of payment.

Limitation of bank rate policy

 In sensitivity of investment.
 In effective in controlling deflation.
 Conflicting effect.
 In effective in controlling balance of payment disequilibrium.
 In discriminatory.
II. Open market operations
Purchase and sell government securities and other credit instruments in the open
market as an additional and to some extent, alternative instruments of central bank
policy are a logical step.
Effect of open market operation
 Effect on interest rate.
 Effect on future expectation.
 Simultaneous determination of interest rate and money supply.
 Open market operation during inflation.

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  Effect on balance of payment.

Objective of open market operations policy

 To influence the cash reserves with the banking system.

 To influence interest rate.
 To stabilize the securities market by avoiding up due fluctuations in the prices and
yields of securities.
 To control the extreme business situations of inflation and deflation.
 To achieve a favorable balance of payments position.
 To supplement the bank rate policy and thus to increase its efficiency.

Limitation of open market operations

 Lack of well-developed security market.

 In adequate stock of securities.
 Excessive cash reserve.
III. Variable cash reserve ratio
It is a new method of credit control used by the central banks. This method is first
adopted by the federal reserve system of the U.S.A in 1935 in order to prevent juror’s
credit expansion or contraction. Thus changes in reserve requirements affect money
supply in two ways.
 It change the level of excess reserves
 In changes the credit multiplier
B. Qualitative or selective methods
The bank rate the open market operations and the variable reserve ratio operate
primarily by affecting the cost, volume and viability of bank reserve and there by tend
to regulate total supply of credit. On the other hand the quantitative or selective credit
control meant to regulate term on which credit is granted in specific sectors. They
seek to control the demand of credit for different uses by:
 Determining minimum down payments
 Regulating the period of time over which the loan is to be repaid

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The important qualitative or selective methods of credit control are: - marginal requirements,
regulation of consumer credit, control through directives, credit rationing, moral suasion and
publicity, and direct action.

2.6. CREDIT RISK

The business of banking is credit and credit is the primary basis on which banks qualify and
performance is judged. studies of banking crises show that the most frequent factors in the failure
of banks has poor loan quality. The credit risk management process of bank is believed to be a
good indicator of the quality of the bank’s loan portfolio (HR Machiraju, 2003).

2.6.1. NATURE OF CREDIT RISK

Credit risk covers all risk related to borrowers no fulfilling his/her obligations on time. Even
where assets are exactly matched by liabilities of some maturity, the same interest rate
conditions, and the same currency, the only on balance sheet risk remaining would be credit risk
exposure is measured by the current mark to market value. The magnitude of credit risk depends
on the likely hood of default by the counter parties, the potential value of outstanding contracts,
and the extent to which legally enforceable netting arrangements allow the value of setting
contracts with that counter.

Partly be netted against each other or value of the collateral to be netted against each other or
value of the collateral held against the contracts (HR Machiraju, 2003).

2.6.2. CREDIT RISK AND COLLECTION MANAGEMENT

Credit and collection management provides the capabilities to segment the borrowers according
to risk, set up controls in sales and service and monitor continuously or when an regarding
treatment of borrowers in collections taking to account business rules borrowers history skills
capacities. Collectors get the complete pictures of their borrowers and have access to all the tools
they need to take adequate measures. Collection managers can monitor the collection process at
any time and take appropriate action when necessary.

 Improving borrower’s service.

 Increasing transparency and accountability.
 Reducing operating cost and increasing efficiency (Wikipedia).

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  Borrower segmentation.
 Credit update.
 Determination and execution of collection activities.
 Managing collection work list.

2.6.3. DEFICIENCIES IN CREDIT RISK MANAGEMENT

The common deficiencies observed in credit risk management in banks are:

 Absence of written policies.

 Absence of portfolio concentration limits.
 Poor industry analysis.
 Inadequate financial analysis of borrowers.
 Absence of loan supervision.
 In adequate checks and balances in credit process.
 Credit rationing contributing to deterioration of loan quality.
 Excessive reliance on collateral.
 Concentration on lending authority.
 Failure of control and audit the credit process effectively.

2.6.4.PRINCIPLES IN CREDIT RISK MANAGEMENT

A bank has to follow three key principles in credit risk management which are selection,
limitation and diversification.

1. Selection: Whom to lend. this is usually based terms of filling all the information
required in a printed loan purpose of loan, repayment and collateral. Information on the
organization on the business proprietorship, partnership, company and other banking
relationships would be required.
2. Limitation: in view of up foreseen changes in the financial conditions of companies,
industries, geographical areas or whole countries, a system of limits for different types
could adopt credit limits in different ways and at different levels, the essential
requirement is to establish maximum amount that may be loaned to anyone borrower or
group of connected borrowers and to anyone industry. Loans may be classified by size
and limits put on large loans in terms of their proportion to total spending.

14
 3. Diversification: involves the spread of lending over different types of borrowers,
different economic sectors, and different geographical regions. To certain extent credit
limits which help avoid concentration of lending insure minimum diversification. The
spread of lending is likely to reduce serious credit problems, size however confined an
advantage in diversification because large banks can diversify but industry as well as
region large banks can diversify by industry as well as region.

2.6.5.METHOD OF REDUCIN CREDIT RISK

Banks can reduce credit risk by:

 Rising credit standards to reject risky loans

 Obtain collateral and guarantees
 Ensure compliance with loan agreement
 Transfer credit risk by selling standardized loans
 Transfer risk of changing interest rates by holding infinancial futures, options or swaps
 Make loans to a variety of firms whose returns are not perfectly positively correlated
(HR machiraju,2003)

2.7.CREDIT POLICY
Credit policy is a set of positions that include a firm’s credit period, credit standards,
collection procedures and discount offered.

i. Credit period which is the length of time given to pay for their obligations
ii. Credit standards which refers to required financial strength of acceptable borrowers
iii. Collection policy which is measured by its toughness or laxity in attempting to
collect on slow paying accounts. (Br, pham,Houston,2004)

2.7.1. CREDIT POLICY IN ETHIOPIA

Because the elaborate paper work, bureaucratic lending procedures and stringent
collateral requirements, the institutions do not deliver credit as and when needed.
More over them operate at high transaction costs.
During imperial regime (1974-1991) all financial institutions were nationalized and
credit was mainly channeled to public enterprises.The provision of credit was not

15
 based on economic rationality but the discrimination against the private sector was
not only in credit access but entirely on government preference also in interest rate,
which was for instance 9% for private sector as opposed to 6%for public industrial
enterprises since July 1986.
(Abraham,2002) noted that with the down fall of Derge, the private sector got equal
access to credit with other sectors, banks were also given autonomy to decide by
themselves based on purely commercial criteria and establishment of private banks
and insurance companies was permitted. As a result loan disbursed to the private
sector, which was 49% in1992/93 rose considerably and reached 87.7% in 2000/01.
In fact there is still unsatisfied demand for credit from this sector of economy due to
inability to meet banks leading requirements.

2.8.SETTING THE COLLECTION POLICY

Collection policy refers to the procedures the bank follows to collect past due credits. The
collection process can be expensive interns of both out of pocket expenditures and lost good will
borrowers dislike being turned over to a bank. However some firmness is needed to prevent an
undue lengthening of the collection period and to minimize out right losses. A balance must be
struck between the costs and benefits of different collection policies. (Brigham and Huston,
2004)

2.8.1.THE NEED FOR CREDIT MANAGEMENT

Proper management of financial institution service operation means the quality of work or the
standard of the business or industry. But,failure to maintain the quality or if the quality or loan is
poor. Low loan performance could lead to the liquidity problem if some of the loans are not
maintaining repaid. Institution could able to repay their debts. Unless there is some form of
protection, depositors will be at risk and will be affected. Profitability is also significantly
affected as consequences. To minimize possible failure of the financial institutions service
operation clear working policies and procedures should be designed & implemented accordingly.
This policy and procedures are in targeting the client management and supervision and follow up
issues.

16
 CHAPTERTHREE

3. METHODOLOGY OF THE STUDY

3.1.RESEARCH DESIGN
To achieve the objectives of the research, the research design was descriptive type of research
because it refers to methods used in exploring query or subject where the methods measure
results and descriptive method is describe some aspect of information and describe real
justification.

III.2. METHOD OF DATA COLLECTION

In order to achieve the objective both type of data source are requiredi.e. primary data and
secondary data source. The primary data was collected from branch manager through interview
and questionnaire, and secondary data was collected from internet and relevant written
documents.

Primary data source

The primary data source is in which data is collecteddirectly from the employees through
questionnaires of staff workers and interviews of branch manager, because in order to get
reliable information from the branch manager and employees.

Secondary data:

Secondary data source was obtained from Lion international bank of Ethiopia adishum
duhnbranch.

3.3. POPULATION AND SAMPLE SIZE

The total number of employees of adishum duhum branch is 7. To select the sample the
researcher was used census sampling technique, which involves selecting the whole population

17
for the sample. Because it is better to obtain (gather) data from the employees who have direct
relation with the study and the target population of a company is small in number.

3.4. METHOD OF DATA ANALYSIS AND INTERPRETATION

The collected data was analyzed, interpreted, and arrangements weremade consistent
with gathered information to the research objective. The collected data wasanalyzed
and interpreted using descriptive method.

18
 CHAPTER FOUR

4. DATA ANALYSIS AND INTERPRETATION

4.1.DATA ANALYSIS BASED ON PRIMARY DATA

4.1.1.DATA ANALYSIS BASED ON QUESTIONER

As included in detail in the methodology part this paper contains both primary and secondary
data. But this section deals with the major results of the whole survey. The primary data
obtained from the respondents thoroughly summarized with help of tables.

Table4.1: analyze the age structure of respondents

Age Response Respondents

In%
20-30 4 58%
30-40 3 42%
Over 40 - -
Total 7 100%
Source: own survey (2016)

As indicated in the above table 58% of respondents are at the age of 20-30 and 42% of
respondents are between the ages of 30-40. From the above table we can understand that
majority of respondents are between the age of 20-30.

19
 Table4.2: To summarize sex structure of respondents:

Sex Response Respondents

In%
Female 5 71%
Male 2 29%
Total 7 100%
Source: own survey (2016)

According to the above table we can understand that from the total respondents 71% are female
and 29% are male. From this we can understand that majority of respondents are female.

Table4.3: summarizing the educational level of respondents:

Qualification Response Respondents in %

Diploma 2 29%
BA degree 5 71%
MSc -
Total 7 100%
Source: own survey (2016)

According to the above table we understand that 71% of the respondents have BA degree and
29% have diploma.

 Respondents who have diploma may not have enough knowledge about credit
collection management of the bank this shows they may not give accurate or relevant
data for the study.

20
 Respondents who have BA degree may have good knowledge about credit collection
management this is useful for collection process of the bank.

Table 4.4: summarizing work experience of employees

Work experience Frequency Respondents in%

Less than 2 year 1 14%
Between 2-4 year 2 29%
Between 4-6 year 3 43%
Above 6 year 1 14%
Total 7 100%
Source: own survey (2016)

From table 4 work experiences of employees 14% of the respondents has less than 2 year
experience, 29% of respondents has between 2-4 year experiences and 43% of
respondents have 4-6 year experiences and 14% of respondents have above 6 year. From
this table we can understand majority of employees has between 4-6 year work
experiences.

Table4.5: summarizing the presence of loan in lion bank

Response Frequency Response in %

Yes 7 100%
No 0
Total 7 100%
Source: own survey (2016)

Employees were asked whether the bank gives loan service for the borrowers and 100%
of respondents answered yes as we can see from the above table. According to the above
table we can understand that the bank generate revenue by granting credit to borrowers.

21
Table4. 6: Summarizing the types of loan term mostly customer use.

Types of loan Response Response in

Term %
Short term 5 72%
Medium-term 1 14%
Long term 1 14%
Total 7 100%
Source: own survey (2016)

As shown from table 6 from the total respondents 72% answered that the loan terms
mostly used by customers is short term loan, 14% said the loan term used by customers is
medium term and 14% of the respondents answered that the loan term used by the
customers is long term.

Using short term loan is good for the borrowers because of low interest rate than long
term loan and it is also useful for the bank by increasing the liquidity of the asset and it
also decrease the risk of uncollectability of the loan from the borrowers.

From this data we can conclude that most of loan of the branch are classified under short
term loan. Which enable the branch to maintain liquidity and help the branch to minimize
risks associated with the advancement of loan. The second part of the table presents the
possible reasons behind the preference of short term loan by customers. Here again all of
the respondents select the interest rate associated with the term of loan as the reason
behind the preference of the term. It is known that short term loan have low interest rate.
This shows that customers of the branch are sensitive to the interest rates associated with
specific loans.

22
 Table4.7: summarizing the existence of credit collection report.

Response Frequency Response in%

Yes 7 100%
No 0
Total 7 100%
Source: own survey (2016)

Employees were asked whether the bank prepare credit collection report and 100% of
respondents answered yes as we can see from the above table. According to the above
table we can understand that the bank is prepare credit collection report.

Table4.8: who is the debtor contract first to request a loan?

Item Frequency Respondents in

Percentage %
Branch manager -
Loan officer 7 100%
Any employee -
Total 7 100%
Source: own survey (2016)

From the above table it can be observed that all of the respondents agreed that a loan
officer is the personnel that have to be contracted first in applying for a loan. This shows
that the company let customers to contract a loan officer firstly when they apply for a
loan. Loan officers are believed to have adequate knowledge regarding a loan. This has
an advantage for both the debtor and bank.

The debtor is benefited from contracting the loan officer in a way that she/he will have a
clear knowledge regarding the credit term and related issue.

The bank, by letting customers to contract a loan officer, will be benefited by examining
the credit worthiness of the debtor bay a loan professional.

23
Table4.9: does the bank asses borrowers past financial history credit worthiness and perform in
detail before extending the loan?

Response Frequency Respondents in%

Yes definitely 4 57%
Yes to some extent 2 29%
Not at all -
I am not quite aware of it 1 14%
Total 7 100%
Source: own survey (2016)

With regard to performance evaluation of the borrowers, 57% of the respondents have
agreed that the bank will assess borrowers past financial history, credit worthiness, and
perform a detail financial analysis strictly before lending the loan.29% of them said that
the bank will assess the customer’s financial status moderately, but 14% of the
respondents have no any idea about the matter. This shows that the managers have no a
diversified understanding about the policies and the procedures of credit collection
management system adopted in lion bank of Adishm Duhun branch.

Table4.10: when the borrower faces a certain problem and unable to pay the loan, what
mechanism do you apply in order the loan to be collected?

Item Response Respondents in%

Extension of the life of the loan 5 71.4%
Injection of additional loans 1 14.3%
Rearrangement of loans repayment 1 14.3
structure

24
 Total 7 100%
Source: own survey (2016)

Regarding the loan repayment techniques different opinions are observed. 71.4% of respondents
have believed that when the borrowers face a certain problem and unable to pay the loan, the life
time of the loan will be extended in order the customer to get time for revival and pay the
loan.14.3% of respondents have repaid that injection of additional loan will be given so that the
customer will make money and becomes in a better condition to pay the loan and 14.3% of them
said that rearrangement of loan repayment structure would be established.

Table4.11: which kind of screening techniques that the bank uses to evaluate credit worthiness of
borrowers?

Item Response Respondents in%

Collateral -
Capital -
Condition -
Capacity -
Character -
All of the above 7 100%
7 100%
Source: own survey (2016)

As shown from table 11: 100% of respondents answered that the bank implements the 5 c s to
screen the debtor’s credit worthiness. So when the bank evaluate the credit worthiness of the
borrowers the branch asks the head office to send the engineers to evaluate the debtors collateral
as this time the borrowers intentionally misleading the engineers about their collateral value so,
the bank has to deal with this problem by using deep evaluation techniques.

25
Table4.12: which type of loan disbursement is your bank use for borrowers?

Item Response Respondents in%

Monthly -
Quarterly -
Annually -
Semi-annually -
All of the above 7 100%
Total 7 100%
Source: own survey (2016)

The above table shows that 100% of respondents answered that the bank uses all types of
loan disbursement method. This implies that the bank use all types of loan disbursement
because it is depends on the borrower’s ability to convert the loan to the liquid assets and
the success of their business. A business like which engaged in petrol station has the
access to convert the liquid asset, in this situation the bank lend the loan for short because
this type of business has a capability to disburse the loan shortly.

Table4.13: does your bank evaluate collateral before granting a loan?

Response Frequency Response in%

Yes 7 100%
No 0
Total 7 100%
Source: own survey (2016)

According to the above table employees were asked whether the bank evaluate collateral
before granting a loan and 100% of respondents answered yes.

26
 This implies the bank uses qualified man power to estimate and evaluate the customer’s
collaterals whether the collateral fit the credit term or not. But in some cases the debtors
intentionally mislead the evaluators to get high amount of loan this may the bank give the
loan inappropriately.

Table4.14: does your bank permitting over draft for the customers?

Response Frequency Response in%

Yes 7 100%
No 0
Total 7 100%
Source: own survey (2016)

Employees were asked whether the bank permitting over draft for the customer and 100%
of respondents answered yes as we can see from the above table. From the above table
we can understand that to permit over draft for customers are depends on the type of
business of the customers. For the company who have quick transaction and for the
company who have quick converting rate of loan in to liquid assets, bank permits over
draft for it’s this types customers.

Table4.15: how your bank set the same interest rate for different amount of loan?

Item Frequency Respondents in%

The bank set the same interest rate for 5 71%

all type of loan
The bank set different interest rate for all 2 29%
type of loan
Total 7 100%
Source: own survey (2016)

From the above table 71% of respondents have believed that the bank set the same interest rate
for all types of loan, and 29% of respondents have believed that the bank set different interest
rate for all types of loan. So the bank has to set flexible interest rate to in terms of the loan
amount.

27
4.1.2.DATA ANALYSIS BASED ON INTERVIEW

Interview was prepared, which enable the researchers to address the research question
more specifically or to concentrate more on the research objective.

1. What are the main credit collection processes of lion bank?

 Loan requested by customers.
 Provide a checklist of the required to be fulfilled
 Engineer and credit information enquires
 Business visit and prepare due diligence
 Loan recommendation
 Head office process
 Pre disbursement
 Post disbursement

This implies that the bank follows good and efficient procedures of credit collection process to
screen the credit worthiness.

2. What are the criteria’s that are used by the bank for granting loan?
 Identifying the business type.
 Identifying the purpose whether for existing business or new business.
 Location of the business.
 Whether the borrower have collateral as pledge for granting loan.
 Assess if the business is market oriented.
 Evaluating the credit worthiness of the borrowers.

This implies that the bank use effective and efficient criteria to evaluate the debtors if they fit
with bank credit policy and terms of loans.

28
 3. How the borrowers become default in repayment of loan?

Borrowers inability or unwilling to meet the obligation under the term and condition
of a credit agreement may be caused by;

 Borrowers using the loan for unrelated business function like using the
loans to the luxuries product for example buying the cars which is not
related to business function.
 Lack of experience of the borrowers to start the business.
 Lack of follow-up by the bank.
 Government policy.
 Failure to generate adequate cash flow.
 Unrealistically optimistic forecasts of a borrower’s revenue and profit
generation capability basis for the loan size and repayment condition.
 Insufficient market assessment
 Borrowers business( technical, financial, marketing or managerial
skills)

This implies the bank does not follow up the debtors this may increase the chance of
uncollectability, so the bank has to follow up regularly to decrease the default rate of the
borrowers.

4. How does your bank deal with default customers?

 Lengthen the maturity date
 Take legal action

If the bank faces default customers firstly the bank addresses the customers to pay the loan, if the
borrowers unable to pay the bank will force to take legal action against the debtors who cannot
pay loan.

5. How you motivate your borrowers who pay earlier before the due date?

29
 The bank uses the following methods to motivate the debtors who pay early and on the
due date

 Decreasing the interest rate.

 Increasing the amount of loan to be lent to the borrower for next time.

This implies bank uses few motivational techniques to motivate the debtors to pay early, so this
may discourage the debtors to pay early and May the bank loses its debtors to the competitors.

6. What are the effects of non-performing loan on the bank financial position?
 The bank may be face cash shortage.
 It decreases interest rate which can be generate by lending the loan
returning.
 The bank will be more conservative to provide loan because of this
the bank losses income from interest.

So the bank has to regularly follow up the debtors to minimize the non-performing rate the
borrowers.

4.2. DATA ANALYSIS BASED ON SECONDARY DATA

1. Loan requested by new customer

New borrower came to our branch in order to get finance.

The first point we should understand the heartbeat of the customer;

What he need? Why he/she need? And when require it?

Firstly we analyzed what a customer need?

This refers that loan size, this means how much provide to a particular customer, and credit term,
this refers the bank properly evaluate the credit worthiness of the customer.

Secondly we analyzed why a customer need?

This specific question refers that the bank considers the debtor purpose of borrowing the loan.

30
From this we can understand that the bank has criteria to provide a loan for the borrower.

Finally we analyzed when a customer need?

This refers the time when customer wants to borrow a loan; this means does the bank have
enough cash to lend the loan to the customers.

2. Analyzing the general eligibility criteria to screen out the customers.

 All customers applying for any type of loan fulfill the following eligibility
criteria.
 All persons engaged in lawful trading activities.
This refers the bank evaluating the customers by using
character customer screening method.
 The business credit applicant should present renewed trade
license.

This refers that the bank grant loan by checking whether the business has got eligible license to
take a loan from the bank.

 The applicant and/or any of its major shareholders/subsidiaries

must not have any non-performing loans in any bank. From this
we can understand that the bank evaluating the ability of the
borrowers to pay the loan. This refers that the bank use
capacity screening technique properly to check the borrower’s
ability to pay the loan.
3. Analyzing Engineers and credit information enquires.
 We should request engineer from head office to estimate the
collaterals of the customer, and engineer estimation report.
This will be requested by inter- memo telephone.

This shows us the bank effectively evaluates and estimate collaterals used as pledged by using
qualified man power.This also shows the engineers evaluate quality of the collateral, the
obsolescence and physical deterioration characteristics and the marketability of the collateral but

31
the collaterals is a second way out due to uncertainty of forecasting future profitability and cash
flow.

 We also request credit information of the customer from head

office by filling credit application form and check the credit
worthiness of the customers in banking industry.

From the above sentence we can understand that the bank crosses check the ability of the
borrowers to pay the loan with head office and weather they have good credit worthiness or not.

4. Analyzing loan recommendation.

 This responsibility of the branch manager and/or customer-relation manager and/or
customer relationship office to recommended their own parts by filling and signing on
loan application form.

From this we can understand that the branch manager has responsibility to add its
recommendation on the approval form.

 After finishing all the necessary steps here above compiled all the documents and send
the file to the head office for further investigation and approval.
5. Analyzing pre-disbursement

What should be the ultimate to disburse the loan?

1st we should let know the applicant about the head office decision.

2nd if the applicant is willing to take the approved loan as per condition to put on loan
approval form, we inform the customer to come with original collateral documents in order to
register nearby municipality or appropriate government organ.

3rd be sure the collateral is/or have insurance coverage, if not we should issue request for
insurance policy.

4th loan contact agreement will be signed with customer and his /her spouse.

5th deduct the deductible item like stamp duty, revenue stamp, estimation and inspection fee,
others fee.

32
 6th after all the necessary prerequisites are fulfilled the loan will be disbursed as per the
condition put on the loan approval form.

This implies the bank follows good procedure to collect the loan which is given previously.

6. Analyzing the post-disbursement

 Regularly follow- up the end use of the loan.
 Regularly follow account operation of the customer.
 If there is a forecasted problem for the loan repayment loan
work out should be recommended for past loans.

33
 CHAPTER FIVE

5. CONCLUSION AND RECOMMENDATION

5.1.CONCLUSION
In general to conclude the study the credit collection management system of the bank is effective
as indicated by the study.

 Respondents with higher with higher educational background contribute a lot to

the effectiveness and efficiency to credit collection process.
 The credit collection reports prepared by the bank are useful to evaluate past
performances and plan future activities.
 The bank grants mostly short term credit and this is useful for the bank and
borrowers. Short term credit have lower interest rate than long term credits in
addition the bank reduces its un collectivity rate by granting short term loans.
 The collection managements of the bank is more effective when employees
with a higher level of experience are involved in the assessment of customers
credit worthiness.
 The processes of granting credit to customers have a big impact on the
collection of credit. The process used by lion bank for granting loans is
effective when compared to standards. The bank uses effective way granting
credit and this helped the bank to score a higher performance of loans. The
process in granting loans include the bank asks the head office to send
engineers to evaluate the quality, material, and marketability of the collateral.
 The collects its loans monthly, quarterly, semi-annually and annually. As the
bank collects its loan in shorter period the liquidity of the bank will increase

34
 and the collected fund could be invested in another type of profit generating
assets.
 The bank uses qualified man power top estimate customers collateral whether it
feet’s the credit term or not.

Even if it is in the credit process the bank doesn’t regularly follow up the customers that are the
reason for customers being default in repaying the loan.

5.2. RECOMMENDATION
Managing of credit (loan) is the main role of any financial institutions (banks). Therefore lion
bank need to further develop workable and realistic strategies to further improve the credit
collection management.

Based on overall evaluation, observations and findings the following recommendations were
recommended in order to increase the workability of policies, strategies of the credit collection
management of the organization.

 The bank has to use the different method to motivate the borrowers who pay
early and on due date like granting cash discount.
 The bank should give consulting services to the borrowers to minimize
collectability risk of the loans.
 The bank should make deep screening method before granting the loans.
 The bank has to set different interest rate depends on the loan size of the
debtors.
 The bank should have to continue granting short term loans to minimize the
collectability risk.
 The bank should have to evaluate the collaterals properly and effectively.

35
Reference
 Bass,1991
 (Bass,1998),fundamental of risk 3rd
 B.M.Lall Nigam professor of commerce Delhi school of economics university of Delhi.
Banking law and practice, 5th edition.
 Conant 1899,Baltnsperger 1887
 Divid R.kamerchen distinguished professor department of economic university of
Athens, Georgia. Money and banking 8th edition 1984.
 DR.R.R Paul MA(economics and philosophy) PhD post graduate department of
economics, money banking and international trade
 Eugene brigham and Joel F.Houston university of Florida fundamental of financial
management, 2004, 10th edition.
 H.R. maharaja, financial economist.

Mark Green distinguish professor of risk and insurance and Robert

R.Dince professor of bank and finance university of Georgia, 1993pers

36
 APPENDIX
MEKELLE UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

FOR PARTIAL FULFILMENT OF THE BACHELOR OF ARTS DEGREE IN

ACCOUNTING AND FINANCE

TO RESPONDENTS: The purpose of this survey is to assess the credit collection management on
lion bank of Ethiopia; Adishum duhn branch. However, the effect of this questionnaire study is
highly dependent upon your honest cooperation.

Therefore, I kindly request your kind cooperation in filling out the questionnaire. I confirm you
that all the data gathered will be held confidential.

Thanks for your participation.

Demographic characteristics of respondents

1, age 21-30  31-40  over 40 

2, sex Male  Female

37
3, educational level of the respondents

Diploma 

Ba degree 

MSc

4, Work experience of employees

Less than 2 years  between2-4 years between 4-6 years  above 6 years


5, does the bank give the loan service for the borrowers?

Yes

No

6, which types of loan term mostly customers use?

Short term

Medium term

Long term

7, does the bank prepare credit collection report?

Yes

No

8, who is the debtors contact first to request a loan?

Branch manager

Loan officer

Any employee

38
9, does the bank asses borrowers past financial history credit worthiness and perform in detail
before extending the loan?

Yes definitely  not at all

Yes to some extent  I am not quite aware of it

10, when the borrowers face a certain problem andun able to pay the loan what mechanism do
you apply in order the loan to be collected?

Extension of the life of the loan

Injection of additional loans 

Rearrangement of loan repayment structure

11. Which kind of screening techniques that the bank uses to evaluate credit worthiness of
borrowers?

Collateral  condition  character

Capital  capacity  All of the above 

12. Which type of loan disbursement is your bank use for borrowers?

Monthly Quarterly  semi annually 

Annually  All of the above 

13. Does your bank evaluate collateral before granting a loan?

Yes No

14. Does the bank permitting over draft for the customers?

Yes  No

39
 If your answer is yes what are the reason
_________________________________________________

15. How your bank set interest rate for different amount of loan?

The bank set the same interest rate for all types of loan 

The bank set different interest rate

Interview question

1. What are the main credit collection processes of lion bank?

2. What are the criteria’s that are used by the bank for granting loan?
3. How the borrowers become default in repayment of loan?
4. How does your bank deal with default customers?
5. How you motivate your borrowers who pay earlier before the due date?
6. What are the effects of non-performing loan on the bank financial position?

THANK YOU!!

40