ADMAS UNIVERSITY

Assessment of Loan & Advance

Administration system of Private Bank in case of United Bank,
Beklobet Branch

Thesis Submitted to Admas University in partial fulfillment of the

requirements for the Degree of Accounting and Finance

Prepared by: Liben Teshome

DEPARTMENT OF ACCOUNTING AND FINANCE

February, 2021

Addis Ababa

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 Admas University
Business and Economics
Department of Accounting and Finance

Executive BA Program
Assessment of Loan & Advance Administration system: The case of United Bank

By: Liben Teshome

Approved by the Board of Examiners

_________________________ ____________________ ________________

Advisor Signature Date

_________________________ ____________________ ________________

Internal Examiner Signature Date

_________________________ ____________________ ________________

External Examiner Signature Date

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 ACKNOWLEDMENT

First and foremost, I would like to thank my Almighty God for his faith in my whole life. It
was impossible to pass those obstacles and ups and downs without the support of him.

Secondly, I really like to thank my all family specially my mom for her unlimited support, and
also insisting me to start the Degree program, and supporting, guiding me in every step of my
life, I am very blessed to have you in my life also I would like to say I love you so much.

Finally and most importantly, I would like to acknowledge Wondimeneh Mamo (Asst.
Professor), Tadele (Asst. Professor), Momina Mohammed, and all the participants of this study
who gave their time and provided their valuable information. Moreover, my heartfelt thanks
goes to everyone that has contributed to this thesis directly or indirectly. THANK YOU.

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 LIST OF TABLE

Table page
4.1.2 Sex distribution of respondents 17

4.1.3 Educational qualification of employees 18

4.1.4 Employment position of respondents 18

4.1.5 Work experience of respondents 19

4.1.6 Customers reason of borrowing in view of employers 19

4.1.7 Credit policy and procedure for non performing loan and advance 20

4.1.8 Follow up 21

4.1.9 Mechanism to increase loan and advance 22

4.1.10 Problem faced by the bank and borrower 22

4.1.11 Impact of NPL on loan & advance management system 23

4.1.12 Rating efficiency 24

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List of Abbreviations

SC ………………………….Share company

NPL …………………………Non- performing loan

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 ABSTRACT

The general objective of this research is to evaluate loan and advance management system of
united bank SC, beklobet branch. In this regard the main objective of commercial bank is profit
earning. Profit is mainly function of both the volume and quality of loan and advance
management system. Among other a good quality of credit consider as good sources of profit.
However, loan and advances as a result of theft, not using proper policy and procedure,
repayment time handing choice and customer handling such loan and advance management
practice may make to the bank to declare bankrupt.

This paper has general and specific objectives to evaluate loan and advance management system
of United Bank SC. The significance of this paper was established weather loan and advance
management system of United bank SC is effective and efficient, because of time and budget
constraint, In this study both primary and secondary data collection method were used.
Descriptive study is employed to provide successful accomplishment in qualitative data sets.

Finally, we tried to give conclusion and to give some important recommendation concerned on
the obtained result of study.

Keywords-: Loan & Advance Administration, Gap Analysis, , Service Quality, SERVQUAL,

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 CHAPTER ONE

1.1Background of the study

In this modern world, commercial banks serve variety of functions of these the main one is
lending fund to the borrowers from deposit they received. A commercial bank is a financial
institution which performs the functions of accepting deposits from the general public and
giving loans for investment with the aim of earning profit. In fact, commercial banks, as their
name suggests, axe profit-seeking institutions, i.e., they do banking business to earn profit.
Commercial bank is one of the most and important institution in a country. Banks act as go
between surplus budget units and offer loan to deficit budget units. The main business of a bank
is spread between interest income on loan and interest expense on saving. Commercial banks
are monetary institutions which serve as interest of the deposition by providing with security
from surplus resources and on the other hand make the profit by investing its resources in the
productive measurement by extending loan. (JULIA KAGAN, updated Jun 8, 2019,
Investopedia, “The role of commercial Bank in the Economy”)

It is evident that a substantial proportion of the total revenue of all banks in Ethiopia comes
from interest on loans and advances. Loans and advances comprise a very large portion of a
bank’s total assets, and they also form one of the most essential operations of a bank. The
strength of a bank is thus judged by the soundness of its loans and advances. Wise and prudent
policies and procedure in regard to credit management are considered important factors
inspiring confidence in depositors and prospective customers of a bank.

As an essential instrument of prudent stewardship is a set of sound and well managed credit
policies, the ability of United Bank to maintain a profitable operation and an adequate control
base is largely dependent on its capacity to engage in a profitable yet safe lending based on such
policies. The process by which the bank seeks, evaluates, extends and monitors its loans is of
paramount importance in the achievement of these objectives.

Although Bank lending is inherently risky, the risk can be minimized and controlled through a
highly professional organization and management of the lending function and through the
formulation of prudent lending practice. A bank with ineffective loan and advance management
system may result on non performing loan that don’t bring any interest income and may force

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 the bank to bear interest for depositors of such lent amounts. This may eventually lend to
bankruptcy of the bank losing its spread. Therefore it is an effective loan and advance
management system is indispensable for any such institution. This is because if a loan and
advance management system isn’t properly operated the bank will lose both economic and
financial privilege.

The credit procedure manual is prepared in line with the credit policy of the bank to be followed
by all concerned in the pursuit of the day-today lending operations of the Bank. (United Bank,
credit Procedure manual, July 2015)

Therefore the study aims to evaluate the loan and advance management system in United Bank
(SC), Beklobet Branch. United Bank (S.C) formed in Ethiopia on September 10, 1998 in
accordance with the commercial code of Ethiopia of 1960 and the licensing and supervision of
Banking Business Proclamation No. 84/1994. The Bank obtained a Banking service license
from the National Bank of Ethiopia and is registered with the Trade, Industry and Tourism
Bureau of the Addis Ababa city administration.

Over the years United Bank built itself in to a progressive and modern banking institution,
endowed with a strong financial structure and strong management, as well as a large and ever
increasing customers and correspondent base. Today, United Bank is a full service Bank that
offers its customers a wide range of commercial banking services with a network of 252
Branches and 9 sub- Branches, and a number of additional outlets on the pipe line.

United Bank’s priority in the coming years is to strengthen its capital base, maximizing its
return on equity and benefiting from the latest technology in order to keep abreast with the latest
developments in the local and international financial service industry. (UNITED BANK
COMPANY PROFILE, 2018/19)

1.2 Statement of the problem

Every commercial Bank main objective is profit earning. Commercial banks get their profit loan
and advance despite the other service. Profit is mainly function of both the volume and quality
loan and advance management system in the bank. Among other a good quality of credit
consider as good source of profit.

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Loan management is a system on the performance of income generating asset i.e. loan and
advances, offer comprehensive management information. It is specifically design to meet the
unique requirement of organization for the final payment of the loan. In efficient loan and
advance management system may create non performing loan. Loan and advances as a result of
theft, not using proper policy and procedure, repayment time, lending choice and customer
handling. Such loan and advance management practice may make to the bank to declare
bankrupt.
To date there is no academic study conducted regarding to loan & advance management for the
study organization than manual.

1.2.1 Research Question

If there is no academic study conducted regarding to loan & advance management for the study
organization, the following questions have been designed.
 What are the appropriate polices and procedure that the bank uses about loan and advance?
 What problems do the bank and the borrowers face with credit policy of the organization?
 What are the impacts of NPL?
 What are the perception of the customer about the availability infrastructure of loan and
advance management system?
 What are the improvements that the Bank takes to insure ineffective loan & advance
management?
 How the credit department does takes in to account about ineffective loan & advance
management?
 What are the strategies that the bank takes in to account about loan & advance?

Therefore this research tries to evaluate the loan and advances management system of United
Bank (S.C) Beklobet main Branch.

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1.3 Objective Of the Study
The objective of the study is divided in to General and Specific objectives.

1.3.1 General objective

The general objective of the study is to evaluate loan and advance management system of
United Bank of (S.C) Beklobet main Branch.

1.3.2 Specific objective

 Assess whether the bank use appropriate policies and procedures.
 Identify the main problems faces by the bank and the borrower with loan.
 Evaluate impact of Loan and Advance management system of NPL.
 Identify the availability of infrastructure of loan and advance management system.
 Evaluate the effectiveness of loan and advance management system of the bank.
 To explore theoretical & Practical aspects of Loan and advance Administration system
Banking Industry.
 To identify the Loan management strategies in context of United Bank of (S.C)
 To recommend a framework to mitigate risk through loan Management.

1.4 Significance of the study

Loan and advance management system have been carry out since the ongoing of United Bank
in Ethiopia. This paper established weather loan and advance management of United Bank
effective and efficient. Thus, the subject matter of this research and the resulting lessons drawn
from the analysis are likely to benefit different classes of people. This study is significant for
its contribution to: knowledge, Management Decision Making, Literature and Reference,
Policy forming.

1.5 Scope of the study

This study mainly focuses on evaluating the loan and advance management system of United
Bank. The bank have large number of customers, for the sake of manageability, this study
focuses only on such customers who have long term loan and advance relation with the bank.

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1.6 Limitation of the study
To prepare this study it will obligatory to have an ample time, well organized environment,
sufficient budget and other related facilities, unless otherwise it difficult to access each and
every point in the research. This study might face the authenticity of sources, reliability and
validity of collected information.

1.7 Organization of the study

The paper is organized in five chapters. The first chapter includes background of the study,
statement of the problem, objective of the study, and significance of the study and scope of the
study and its limitation.

The second chapter deals with related literature reviews, which have consisted of theoretical
frame work of loan and advance management, empirical study on the function of loan and
advance in enhancing accountability and performance improvement, and summary of the
findings from previous research.

The third chapter will describe the research Design and methodology, which is used for in
conducting the research. The last chapter will show the study time schedule.

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 CHAPTER TWO

2.1Review Of Related Literature

2.1.1 Introduction
Banking and other financial services are under the supervision of the National Bank of
Ethiopia (NBE), as central Bank. The National Bank of Ethiopia is one of the regulatory
institutions to make specific national commitment to financial inclusion, and one state owned
commercial bank and newly emerging private commercial banks are under the Alliance for
Financial Inclusion (AFI) of National Bank. (MAYA DECLARATION URGES, Sept. 30,
2011, financial inclusion for world’s unbanked population, state of Mexico)

2.1.2 Origin and Growth of Banking

Banking originated in an Ancient Mesopotamia where the royal places and temples provided
secure places for the keeping of grain and other commodities. In Egypt to the centralization
of harvests in state ware houses led to the development of system banking. Written order for
the withdrawal of separate lots of grain by owners whose crops had been deposited there for
safety and convenience or which had been compulsorily deposited to the credit of the king,
soon become used as a more general method of payment of debts to other persons including
tax gathers, priests and traders. Even after the introduction of coinage, these Egyptian grain
banks served to reduce the need for precious metals which tended to be reserved foreign
purchase particularly in connection with military activities.

In general the term bank in the modern term refers to an institution having the following
features.
 It deals with money; it accepts deposit and advance loan.
 It also deals with credit; it has the ability to create credit.
 Its commercial institution; it aims at earning profit.
Its unique financial institution that creates demand deposits which serve as a medium of
exchange and as a result the banks manage payment system of the country. (WILLIAM L.
SILBER, Dec 16, 2019, Principles of Money, Banking and Financial markets, (12th Edition))

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2.2 Meaning and Function of Commercial Banks
2.2.1 Meaning of commercial Banks
Commercial banks are organized as a joint stock company system for the purpose of earning
profit. As a type of financial institution, that accepts deposits, offers checking account
services, makes various loans, and offers basic financial products like certificates of
deposit (CDs) and savings accounts to individuals and small businesses. A commercial bank
is where most people do their banking, as opposed to an investment bank.
Commercial banks make money by providing loans and earning interest income from those
loans. The types of loans a commercial bank can issue vary and may include mortgages, auto
loans, business loans, and personal loans. A commercial bank may specialize in just one or a
few types of loans.

2.2.2 Functions of commercial Banks

In the modern world, banks perform so many functions and such varied nature that it was
even difficult to imagine them. It’s not possible to prepare an exhaustible list of these
function as the service that the bank provides these day are so diverse and varied and
responsibility are so great and every expanding that its final stage can hardly be predicted.
The following are some functions of commercial Banks. (JULIA KAGAN, updated Jun 8,
2019, Investopedia, “The role of commercial Bank in the Economy”)
Accepting Deposit
The first important function of commercial bank is to accept deposits from those who can
save but not profitably utilize saving themselves. To attract savings from all sorts of
individuals the banks maintains different types of accounts.
 Fixed/time/deposit accounts: money is those accounts are depositors for fixed time of
period and can’t withdraw before the expiry of that period. The rate of interest on this
account is higher than on other types of deposit.
 Current/demand/deposit accounts: these accounts are generally maintained by the
traders and business man who have made a number of payments every day. The depositors
can withdraw money from these accounts on the demand. Normally, no interest is paid on
these accounts and cheque facility is provided to the depository.

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  Saving deposit account: the aim of these accounts is to encourage and mobilize small
savings of the public. Rate of interest paid of these depositors is low as compared to that on
fixed deposit.
 Advancing Loans
The second important function of a bank is advancing of loans to the public. After keeping
certain cash reserve, the banks lend their deposits to the needy borrowers. Before advancing
loans the banks satisfy themselves about the credit worthiness of the borrower. The
commonly types of loans granted by the banks are term loans, overdraft facility and others.
(WILLIAM L. SILBER, Dec 16, 2019, Principles of Money, Banking and Financial markets,
(12th Edition))

2.3Loan and Advance Management System

The system is about on the premise that the manager of the organization must understand as
the various systems that compose that the entire operation.
2.3.1 Modern Management
Modern management theories indicate further requirement extension and synthesis of as
classical and non classical/behavioral/ to management. Management is the planning,
organizing, staffing, directing and controlling the activity of people working group in order
to achieve the objective of the group.
2.3.2 The Loan
There is predetermined time for repaying a loan and general the lender have bear the risk that
the borrower may not repay a loan (although modern capital markets have developed many
ways of managing this risk).
2.3.3 The Loan Management System
The loan management system is a complete a multi-user loan management system. The
system can be used by banking institution, micro-lenders, financers as well as retail
institution sale type transaction. Loan management system is designed for the settlement of
use by front line staff, consumer service staff and management.
The loan management system has recently been completely re-written to make use of latest
technology and to include latest concepts.

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 Loan management system includes the followings:
1. Credit Management Information System
The effectiveness of the banks process heavily depends on the quality of management
system.
2. Loan Policy
Where the form and contents of a loan policies and procedures will variety from bank to
Bank. These are:-
 loan authorities
 limits on aggregate loan and commitment
 under writing criteria
 financial information and analysis requirements
 pricing grid lines
 collection and charge offs
 report requirements
 guidelines for loan participation
3. concentration management techniques
Banks especially large ones have been adopting more active management parties.
Diversifying a way from a limit can be accomplished by reducing certain exposures or
increasing the borrower base.
4. personnel
Compare overall staffing levels in the lending and loan control areas with the size
complexity and level of risk. Determine whether a bank program ensures that staffs
acquire the appropriate skills. Analyze the lending areas compensation plan and
performance evaluation system.

2.4 Loan and Advance

2.4.1 Loan
It is an arrangement in which a lender gives money or property to a borrower and agrees to
return the property or repay the money usually along with interest at some future time.
Usually it is predetermined time for repaying of a loan and general the lender has bear risk
that borrower may not repay a loan.

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 2.4.2 Advances
Advances are credit facilities in the form of written promises that should not necessarily be
given on physical money as in loans. (WILLIAM L. SILBER, Dec 16, 2019, Principles of
Money, Banking and Financial markets, (12th Edition))

2.4.3 Meaning of credit

The word “credit” is derived from the Latin word creditum which means to believe or trust.
In economics, the term credit refers to a promise by one party to pay another for money

Borrowed or goods or services received. It is a medium of exchange to receive money or

goods on demand at some future date. (KUMAR AND MITTAL, July 8, 2010, Role of the
credit rating agencies in the financial market crisis)

2.5 Types of Loans and Advances

Commercial banks usually the following three types of loans;
 term loans
 participation loans
 personal loans

2.5.1 Term Loans

Term loan is debt originally scheduled for repayment in more than one year but generally
less than ten years. Term loans are physically money lent to borrowers in exception of period
repayments. It is a method of financing which is characterized by periodic repayments that
can be monthly, quarterly and semi annually or on lump sum basis (ballon repayments).this
can be categorized in to three based on duration.
 Short term loans: loans term have duration not exceed a maximum of 12 months from the
date of disbursement.
 Medium term loans: If it is scheduled to be repaid between 13-60 months, excluding the
grace period. The purpose of the loan may vary from backing working capital to renovating
commercial premises, purchase of vehicles, machineries. Loan requests having project nature
can also be entertained under this category of loan.
 Long term loan: a loan which has a maturity period longer than five years excluding the
grace period, but not exceeding a maximum period of ten years excluding the grace period.
(United Bank Company Profile, 2018/19)
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2.5.2 Over Draft Facility
over draft is usually temporary arrangements and this facility is given to the customer having
current account under over-draftfacility.the amount of over-draft the period for which the
accommodation is granted are settled between a loan and over draft is that, while in case of
former, the customer pays in interest on sum standing to the debt of his loan interest, in the
later case he pays interest of customer, over draft is more favorable that a loan generally back
charges high rate of interest on over draft than on loan.

2.5.3 Over Drawl Facility

An over draw is a facility where by customers are allowed to draw temporarily funds to
bridge temporary shortage of fund overdraft is not a facilities that is allowed in the same way
banks allows overdraft can be approved by authorized officials of the when recovery of such
overdraw is expected from reliable substantiated remittance in transited export bill pending
negotiations or any other source repayment considered genuine.
The facility is granted to customers to maintain current accounts with acceptance swing and
turnover the accounts. Besides the customer should presented genuine and acceptable transit
export bills, pending payment etc. (KUMAR AND MITTAL, July 8, 2010, Role of the credit
rating agencies in the financial market crisis)

2.5.4 Advance on Import Bills

Advance on import bill is a written promise that the bank gives to foreign banks on behalf of
its clients. This is designed to accommodate the non withdrawal of import documents by the
importer and letter of credit (L/C) is used as an instrument.
Letter of credit (L/C) is a written promise from third party (usually a bank) for payment in
the event that certain conditions are met. It is frequently used to guarantee payment of
obligation.

2.5.5 Advance against Export

Advance against export are made available to customers against presentation of complete set
of export documents. Such requests for percentage advance must present to the lending
branch.

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 2.5.6 Non-performing Loan
Non-performing loan: are loans and advances whose credit policy has deteriorated such that
full collection of principal and or interest in accordance with the contractual repayment terms
of the loan and advance is in question. (Ethiopian Institute of Banking and insurance training
manual, 2001)

2.6 Loan category by types of sectors

Agricultural loan: include loans granted for purchase of agricultural inputs like selected
seeds, fertilizers, agrochemicals, rental of purchase of agricultural machinery equipment.

Manufacturing loan: loans availed to facilitate the manufacturing activities of small,

medium and large-scale industries are classified under this category.
Import/Export loans: Foreign trade plays a key role in the development of an economy and
has always been the major force behind the economic relations among nations. In view of its
paramount importance and the bank’s role to promote the growth of Ethiopian economy,
international trade financing in the form of import and export transactions is one of the
priority areas of the bank.

Trade and service loan: trade and service loans include wholesale trade, retail trade,
services other than transport such as hotels, schools, hospitals, tour agencies, etc. financing
trade and service helps in the smooth flow of goods and services in the economy and serve as
an intermediary between producers and customers.
Building construction loan: United Bank avails loan to this category for building
contractors, investors engaged on road and water projects under construction, civil workers
and business persons who seek financial assistance to construct commercial or residential
buildings.

Transportation loan: all loans to be availed for the purchase of transport vehicles like
trucks, tankers and public transport buses to licensed transport operators are to be classified
here.

2.7 Limitation of the creation of Credit

The power of commercial bankers to create credit is limited mainly by cash reserves which
they have to hold against their deposits and the total amount of legal tender currency issued
by the central bank. Every bank has to meet the demands of its customers to pay; over the
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 country so working reserve of liquid cash always necessary for the banker. Of course, if
people are highly banking minded, a lower cash reserve will suffice. But in the case of
community where the banking habits are not well developed a higher cash reserve is
essential. In either case a cash reserve is necessary and this acts as a brake on the power of
the banks to create credit. (WILLIAM L. SILBER, Dec 16, 2019, Principles of Money,
Banking and Financial markets, (12th Edition))

2.8 Loan policy and Approval process

The loan policy is the primary means by which senior management and the board guide
lending activities. Although the policy primary imposes standards, it also is a statement of the
banks basic credit philosophy. Loan policy states standards for policies compensation
individual credit decision fair lending and compliance management.
The loan approval is the first step towards good portfolio quality which individual credits are
under written with sound credit principles. The credit principle, the credit quality of portfolio
is more likely to sound although good loans go bad, that starts out bad is likely to stay that
way. The foremost means to control loan quality is a solid loan approval process. (National
Bank of Ethiopia 2002:8)

2.9 Loan Evaluation

The criteria for giving credit are most of the most the time subjective job it depends on the
staffs personal judgment is a very hard job to decide on dividing loans this to say that
differentiating people who pay back the loan from people who don’t a bit difficult.
Bank issue loans to those who are credit worthy. Credit worthiness may be seeing from
different angles. When the company asking for loan is profitable, if there is an acceptable
debit equality ration in the form of good managerial capability.

2.10 Loan Arrangement

A loan arrangement is a written agreement between lender and borrower which outlines the
obligation of each party makes certain warranties, and often places certain restriction on the
borrower.
Loan agreements originally were used primary by larger banks in connection with term loans.
But in recent years money lenders have recognized the benefits of a written agreement in
connect with various types of loans includes short terms working capital and agricultural
loans.
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A loan agreement may accomplish a number of objectives
 It set out in writing the various agreements between parties, thereby preventing disputes
and misunderstandings.
 It may give the lender a certain degree of control over the debtor business by recurring
certain action on the part of the debtor.
 It clarifies to the borrower exactly what is record of him.
 It usually gives the borrower assurance that as long as the complies with the term of
agreement.
The loan agreement usually are tailored to meet the requirements of a specific situation, most
loan agreements contain certain standards provision which may be divided in to four general
categories.
 warranties
 positive covenants
 negative covenants
 specific situations (S.WAYNE LINDER, April 8, 2015, court of appeal second circuit,
state of Louisiana)

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 CHAPTER THREE
3.1 Research Design and Methodology
The study used Mixed Approach Data analyze method and focus on the assessment of loan
and advance management in case of United Bank (S.C) Beklobet Branch and used to
investigate by descriptive research design. The reason of using this research design provides
answers to question like what, how, who as they are related to the research problem and
make them easy to understand and interpret.

3.2 Population, sample size and sampling techniques

The sampling size and population target of the study is availability of customer at the time
of the service being the data collected from customers, the bank and Manager.

3.3Sampling Method
In this research study, the researchers expected that respondent is not available once at the
same time and place, the customer is heterogeneous, that means the customers are not get
the same time at the right time. For this purpose convenience sampling technique are used.

3.4 Data type and sources

By this studying, cases or assessment of loan and advance management uses both primary
and secondary data sources to get necessary information. The primary data is collected from
customers of the bank and manager of the bank. The secondary data are gathered from
books and internet.

3.5 Data collection Tools

The study use both primary and secondary source of data. The primary data is collected
through questionnaire to get information from customer of the bank and interview through
manager of the bank to get information regarding loan & advance management. The
secondary data collected form books and internet.

The main reason for using questionnaire is that the responders have adequate time to give
answers freely (give their filling or idea related to perceive, service and their satisfaction in
the United Bank).

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3.6 Method of Data Analysis
After all information is collected it is classified, analyzed and summarized. The collected
data is analyzed by using qualitative through interview and quantitative for questionnaire
(that means that data is analyzed through percentage, tabulation, statement and
presentation).

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 CHAPTER FOUR
4.1 DATA Presentation Analysis And Interpretation
4.1.1 Overview
This chapter deals with presentation and analysis of major data. These findings are based
on data collection through questionnaire distributed and conducted during the data
collection phase of the study. Employees are taken from united bank S.C loan department
found in Beklobet. In the Bank there are 38 employees, from these the study takes 15% of
the employees those working on loan and advance positions and from customers side there
are many long time existed customers but out of them the study uses 4 customers. The data
collected is then analyzed using descriptive analysis technique endeavored in frequency
count table and accompanying descriptive analysis. The data collected, analyzed and
interpreted are presented here under.
4.1.2 Sex distribution of respondents
Accustoming one with respondents’ characteristics may enable to better articulate their
response. Accordingly the study gathered the data shown in Table 4.1.2 below

Table 4.1.2 Sex distribution of respondents

Sex No of Percentage
respondents
Male 5 83.33%
Femal 1 16.67%
e
Total 6 100%
(Source: questioner survey)
Table 4.1.2, above shows that more than half the employees i.e., 83.33% are Males and
the rest 16.67 are Females. It is clear from such data that, in united bank S.C loan and
advance officer males dominate females. Based on the studies’ we emphasized, as there
is unfair distribution of sex in the loan and advance officer and which contradicts the
rational and wise idea of equality concepts..

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4.1.3 Educational Qualification of Employees
Educational qualification may enable the study to analyze employees’ capacity to
properly operate the loan and advance management system of the bank. Accordingly the
study gathered the data shows in table 4.1.3 below

Table 4.1.3 Educational Qualification of Employees

Educational No of the Percentage
qualificatio respondent
n
Degree 3 50%
Diploma - -
Masters 3 50%
Total 6 100%
(Source: questionnaire survey)
According to table 4.1.3 above, half of the employees i.e. 50% are Masters and the rest
50% degree holders. For the astonishment of the researcher, the respondent educational
qualification is mostly needed in the loan and advance officer of any commercial banks in
the Ethiopian level. So that the researcher notifies and advises that qualification and
experience are essential for proper operation of the loan and advance management system
and need to keep this.
4.1.4 Employment position of Respondents
The employment position of the respondents enables the study to observe the distribution
and the existence of segregate of duties and responsibilities in the loan and advance
management system of the bank.
Table 4.1.4 employment position of respondents
Position No of respondent Percentage
Manager 1 14.28%
Credit 1 14.28%
analyst
Loan 5 71.44%
officer
Total 7 100%
(Source: questionnaire survey)

The above table 4.1.4 clearly shows that 14.28% of the respondents are managers,
14.28% are credit analysts while the rest 71.44% are loan officers. Therefore, the
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employment position of the bank show as there is adequate segregation of duties.
Moreover, majority i.e. 71.44 % are loan officer, which indicates the precaution taken by
the bank to prevent non performing loans. Hence, it can be concluded that loan and
advance system of the bank is properly operated, evaluated and given to customers.
4.1.5 Work Experience of Respondent
In this section from the work experience employees in the bank are presented and
analyzed. Employees’ work experience in bank for long period of time enable to better
operation of the loan and advance management and distribution system accordingly the
following gathered data table 4.1.5 shown below

Table 4.1.5 work experience of respondents

Time stayed No of respondents Percentage
Less than 1 year - -
From 1-3 year - -
Above 3 year 6 100%
Total 6 100%
(Source: questionnaire survey)
The above table 4.1.5 indicates 100% of respondent have above 3 year of work
experience. This shows that, such work experience and training enables the bank to well
attain and operates loan and advance management system.
4.1.6 Customers Reason of Borrowing in view of Employers
Reason of borrowing is the main part of analysis of loan and advance management for the
bank. If the customer is borrowing money for consumption purpose the bank will
speculate that the money might not be repay. The following table 4.1.6 analyzes reason of
borrowing.
Table 4.1.6 Customers Reason of Borrowing In View of Employers

Reason for No of Percentage

borrowing respondents
Consumption - -
New Business 6 100%
Educational -
Business expansion -
Total 6 100%
(Source: questionnaire survey)
From the above selected respondent asked why most of customers borrow money, as per
employee’s response all the costumers borrow money for the purpose of new business,
this may good for the bank because if the customers implement the money for business
he will get profit easily and will repay back the money on time.

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4.1.7 Credit Police and Procedure for non performing loan and advance
In this section the data collected from employees of loan department. Credit policy and
procedure is pillar to the bank and analyzing this specific issue is very important.

Commercial bank credit policy and procedure are summarized in following table 4.2.6

Table 4.1.7 Credit Policy and Procedure for non performing loan and advance
Questionnaire Response of No of respondents Percentage
questionnaire
(a) Does the bank uses credit Yes 5 85.72%
policy and procedures for No 1 14.28
Total 6 100%
NPL?
(d) Does the bank evaluate Yes 6 100%
the credit worthiness of No - -

customer? Total 6 100%

(g) Is there any mechanism Yes 6 100%
does the bank uses
No - -
beyond the regular credit
total 6 100%
policy and procedure for
not performing loan and
advance?
(Source: questioner survey)
From the above table 4.2.6 shows the bank use credit policy and procedures for NPL, the
bank also evaluate the credit worthiness of the customer and also the bank believes that
the credit policy and procedure not by itself have positive contribution to loan and
advance management system. Rather there are also other mechanisms like Positive
treatment and setting minimum NPL for the repayment of NPL and advance.

The appropriate credit policy and procedure brings the banks profit, security of collateral
and also protects the banks from unnecessary cost. Hence, its quality credit policy and
procedures giving by the bank has developed sound loan and advance processing
systems. The main purpose of evaluating customers is to check whether the client pays
bank the money it borrow or not, but the finding shows that the bank is appropriately
evaluating the customer.
4.1.8 Follow Up

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One of the care duties of commercial bank is to take follow up for the loan and advance.
This protects the bank from unnecessary cost. So, the research tried to analysis the
following follow up. Table 4.1.8

Table 4.1.8 Follow Up

Questionnaire Response No of respondents Percentage
(a) Is there proper Yes 5 85.72%
No 1 14.28%
treatment for non
Total 6 100%
performing loan and
advance?
(d) Is there progress of Yes 4 66.67%
repayment of loan No 2 33.33%
Total 100%
and advance in the
bank?
(Source: questionnaire survey)
The first questionnaire i.e. is there proper treatment for NPL and Advance? Of the total
employees 85.72% of them says yes and 14.28% are says no. According to above
description most of the employees response is that sick loan is well treated and this has
positive impact in minimizing additional cost like collecting the spread money, in
reselling collateral because of not paying the money given to the clients, but there is still
some problem not treating sick loan and this must be improved by the bank.

The second question for this follow up part “is there progress of repayment of loan and
advance in the bank” then the employees are responded that progress is improved through
time; mathematically 66.67% is yes for this specific question and 33.33% no for this
question. According to above findings the repayment progress is improving. This is
positive implication in the collection of spread money properly, but there is little problem
in collection of spread money that must be improved through time.

4.1.9 Mechanism to Increase loan and Advance

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All commercial bank has different mechanism to increase loan and advance. This creates
expansion of credit customers and helps investment and profit. Mechanism to increase
loan and advance are summarized in the following table 4.1.9

Table 4.1.9 Mechanism to Increase loan and Advance

Questionnaire Response No of Percentage
respondent
Do you know the better Yes 6 100%
No - -
mechanism mobilization
Total 6 100%
increased of loan of loan
and advance
(Source: questionnaire survey)
The above table shows that the company has a mechanism of mobilized increase of loan
and advance. The researcher concludes, unless the company is thinking about better
mechanism of rendering, it is not competing in this modern world.

4.1.10 Problem Faced by the Bank and Borrower

In these sections the researcher is analyzing problem faced by the bank and borrower
encountered by the bank that is happened on the borrower during lending and borrowing
process. Here in the table 4.1.10 problem between bank and borrowers is analyzed.
Table 4.1.10 Problem faced by the Bank and Borrower
Questionnaire Response of No of Percentage
Questionnaire respondent
(a) Are there problems that Yes 5 85.72%
exist in extending the No 1 14.28%
period of loan? Total 6 100%
(d) Is there any problem faced Yes 5 85.72%
by the bank during lending? No 1 14.28%
Total 6 100%
(Source: questionnaire)
The analysis of above table 4.1.10 is as follow:
Employees were asked to respond that are there problems in extending repayment of
loan? Then 85.72% of the employees were answered that there is a problem in extending
and 14.28% of employees say that there is no problem in extending. Interpretation for this
specific issue can be in two ways it is, if the customer is bad in repayment, time
extending have a problem. More than half of the employees agree in time extending
“have problem” because they face different customers with different problems.
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The last question is, is there any problem faced by the bank during lending?, for this
question, 85.72% of employees response that there is a problem in the process of lending
and 14.28% of employees response that there is no problem in the process of lending.
When we analyze this specific subject, the study encounter that, there are lots of problem
in day to day activity by the bank and also by the borrower. Some problems of the bank
are problem in estimation of collateral, problem of spread money and so on.

4.1.11 Impact of NPL on loan and Advance Management system

Analysis of the impact of loan management system to NPL is important for the bank. the
following table 4.1.11 is analyzed the above issue.

Table 4.1.11 Impact of NPL on Loan and Advance Management System

Questionnaire Response No of Percentage
response
(a) Is there any mistake on Yes 5 85.72%
estimation of collateral No 1 14.28%
and evaluating borrower Total 6 100%
before final report?
(d) Is there the major internal Yes 4 66.67%
factory that aggravates No 2 33.33%
the occurrence of NPL? Total 6 100%
(Source: questionnaire survey)
As indicated in the above table 4.2.11, 85.72% of employees say that there is no mistake
in estimation of collateral and estimation of borrower before report and 14.28% say there
is mistake. This issue was analyzed earlier and the study have seen that there is problem
in estimation of collateral and assessment but the bank is trying to reduce mistake in
estimation of collateral and the bank has marking its effort in minimizing of risk.
The response for second questionnaire in the above table 4.2.10 is that some of the
employees didn’t agree, of this 66.67% employee responded internal factor that
aggravates the occurrence of NPL. 33.33% are said external factor aggravate the
occurrence of NPL. The description for this is that, lack of strong follow-up and fatigue
of customers itself; improper treatment of customers and non flexibility of the bank with
treatment of the customer are aggravates the occurrence of NPL internally. Some external
factors are like market failure, unprofitable business chooses by customer and customer
behaviors are also aggravates the occurrence of NPL.
4.1.12 Rating Efficiency

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The following table 4.1.12 analysis the efficiency of borrower and the bank. Generally
efficiency means ability to do something .Here under the researcher have some analysis
in loan and advance efficiency analysis.

Table 4.1.12 Rating Efficiency

Questionnaire Response Number of Percentage
respondent
(a) Does the Bank give sufficient More efficient - -
awareness for the borrower? Efficient 3 50%
In efficient - -
Less efficient 3 50%
Total 6 100%
(d) Are there modern technology More efficient - -
Efficient 5 85.72%
for the expansion and
In efficient - -
diversification of loan and Less efficient 1 14.28
advance? Total 6 100%

(Source: questionnaire survey)

According to table 4.1.12 shows, does the Bank give sufficient awareness for the
borrower? for this questioner, 50% of the respondent says efficient, 50% says less
efficient. Interpretation for this specific issue is important for increasing the number of
creditors of the bank and the amount of money needed by the credit customer.

Next as per employees’ response for the questionnaire are there modern technology for
the expansion and diversification of loan and advance? For this questioner, 85.72% of
respondent says efficient, 14.28% says less efficient. Here in this modern world technical
improvement is very important for the banks expansion and development.

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 CAPTER FIVE
CONCLUSION AND RECOMENDETION

5.1 Conclusion

Here in this part the researcher will conclude as below

 According to the findings gathered all the respondents responded that the bank uses
appropriate policy and procedure. This brings to the bank profit and security of costs.
Hence, its quality management and the bank’s attention have developed sound loan and
advance processing system. The bank continually revises its loan and advance
procedures.
 As stated in chapter three the bank is giving well attention for non performing loan
(NPL). If the banks NPL accumulate, it loses the money getting from interest.
 Further the bank is using proper and acceptable evaluation system. As the bank giving
particular attention for evaluation, it has developed a sound loan and advance processing
procedure.

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5.2 Recommendation

Providing loan and advances supports in promoting national economic growth through the
invisible hand. That is, if a bank provides loans to all sector of the economy, in turn help
the society as a whole. This gradually increases number of transaction in the business
market among the different sectors and leads to economic growth.
The more the bank lends the more profitable it becomes and in turn increase capital of the
bank in the form of reverse along with its deposit mobilizations. Growth in capital leads to
proportional growth of loan funds.
Thus, from finding of the study the following recommendations can be made for further
growth and development of the bank as well as to reduce non –performing loans in the
bank.
 Emphasis should be made on the importance of strengthening credit facilities while
processing loans. Like, favoring some area of the loan sector that enhance for the
economic development I.e. agricultural sector. And finally the bank should provide
training to the staffs that work in credit section, which makes them more efficient as
well as training for customers.
 It is expected, among other things, loans that are not well processed turn to non-
performing loans. Therefore, serious attention should be given and areas should be
well addressed in order to reduce NPL while processing loans.
 Attention should give in credit customer handing
 Emphasis should be made on the importance of enhancing credit follow –up activities
after credit disbursed.
 Continues awareness should be created among borrowers that they should be close to
the bank and consult the bank when they observe any symptom that they facing
difficulties in meeting obligation.

On the side of borrowers, conducting study regarding importance and viability of the
business undertaken before approaching to bank credit, forecast the capital required to
perform the task, etc. On the side of bank, collect all the data, information and documents
related to the loan, application to handle assessment and appraisal of credit, etc.

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Reference

JULIA KAGAN, updated Jun 8, 2019, Investopedia, “The role of commercial Bank in the
Economy”)
UNITED BANK, credit Procedure manual, July 2015)
UNITED BANK COMPANY PROFILE, 2018/19)
MAYA DECLARATION URGES, Sept. 30, 2011, financial inclusion for world’s unbanked
population, state of Mexico)
WILLIAM L. SILBER, Dec 16, 2019, Principles of Money, Banking and Financial markets,
12th Edition))
KUMAR AND MITTAL, July 8, 2010, Role of the credit rating agencies in the financial market
crisis)
ETHIOPIAN INSTITUTE of Banking and insurance training manual, 2001

S.WAYNE LINDER, April 8, 2015, court of appeal second circuit, state of Louisiana)

NATIONAL BANK OF ETHIOPIA’S MEMORANDUM ref. no 50/290/04, dated October

26,2004)

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