Addis Ababa University

College of Business and Economics

Department of Accounting and Finance

Assessment of Term Loans Collection Performance of Oromia International Bank S.C

By

Abdurhman Dekebo

Supervised by
Abebaw Kassie (PhD)

A Thesis Submitted in Partial Fulfillment of the Requirement for Award of the Degree of
Master of Business Administration in Finance

Addis Ababa
27 May 2020
 I

STATEMENT of DECLARATION

I, the undersigned, declare that this thesis is my own work and has never been presented in any

other university. I have carried out the research work independently with the support and

guidance of my research advisor. All sources of materials used for this thesis have been duly

acknowledged.

Declared by:

Name: Abdurhman Dekebo Rabis

Signature: ___________________

Date of Submission: 29 November 2019

Place: Addis Ababa, Ethiopia

Advisor: Abebaw Kassaie (PhD)

Signature: _____________________

Date: _________________________
 II

STATEMENT of CERTIFICATION

This is to certify that the thesis entitled “Assessment of Term Loans Collection Performance

of Oromia International Bank S.C” was carried out by Abdurhman Dekebo Rabis under the

supervision of Abebaw Kassie (PhD) and thus has been submitted as a partial fulfillment of the

requirements for the degree of Master of Business Administration concentration in Finance. It

complies with the regulations of the University and meets the accepted standards with respect to

originality and quality.

Approved by:

Abebaw Kassie (PhD)

..........................................................................................................................................................

Name of Advisor Signature Date

..........................................................................................................................................................

Name of Internal Advisor Signature Date

..........................................................................................................................................................

Name of External Advisor Signature Date

 III

ACKNOWLEDGEMENTS

First and for most, I would like to say “Al-hamdu-li-Allah” to the almighty Allah, the

compassionate, the most Merciful and source of Knowledge & Wisdom - who bestowed upon

me to be healthy, patient and love for learning even more - hoping to achieve the purpose of

living and to be worthy for others.

Next, I would like to reflect my SPECIAL APPRECIATION for someone who do deserve my

MAXIMUM RESPECT: my advisor (whom I prefer to call “my Doctor”) Abebaw Kassie (PhD)

- Assistant Professor of Accounting and Finance, Accounting and Finance Department, Addis

Ababa University - for his usual cooperation and consistent guidance; from day-one of selecting

topic for my thesis - all the way - towards the moment of finalizing the same.

Moreover, my sincere appreciation goes to all survey respondents of OIB staffs who had taken

active part in providing helpful comment and also those who sacrificed their time answering the

questionnaire that assisted me to collect firsthand data.

Finally, great thanks to all my beloved families who had been always besides me in encouraging,

supporting and playing their advisory service in the process.

 IV

TABLE of CONTENTS

STATEMENT of DECLARATION ................................................................................................ i

STATEMENT of CERTIFICATION ............................................................................................. ii
ACKNOWLEDGEMENTS ........................................................................................................... iii
TABLE of CONTENTS ................................................................................................................ iv
LIST of ACRONYMS .................................................................................................................. vii
List of Tables ............................................................................................................................... viii
Abstract ......................................................................................................................................... ix
CHAPTER ONE ............................................................................................................................. 1
INTRODUCTION .......................................................................................................................... 1
1.1 Background to the Study .................................................................................................. 1
1.1.1 Loans and Advances Performance of OIB ....................................................................... 2
1.1.2 Settled Term Loans Performance of OIB ......................................................................... 2
1.2 Statement of the Problem ................................................................................................. 3
1.3 Research Questions .......................................................................................................... 5
1.4 Objective of the Study ...................................................................................................... 5
1.4.1 General Objective ............................................................................................................. 5
1.4.2 Specific Objectives ........................................................................................................... 5
1.5 Significance of the Study ................................................................................................. 6
1.6 Scope and Limitation of Study ......................................................................................... 7
1.6.1 Scope of the Study............................................................................................................ 7
1.6.2 Limitations of the Study ................................................................................................... 7
1.7 Organization of the Study ................................................................................................ 8
CHAPTER TWO ............................................................................................................................ 9
LITERATURE REVIEW ............................................................................................................... 9
2.1 Introduction ...................................................................................................................... 9
2.2 Theoretical Literature Review........................................................................................ 10
2.2.1 Principles of Bank Lending Policies .............................................................................. 10
2.2.2 Repayment Capacity of Borrowers ................................................................................ 14
2.3 Empirical Literatures Review........................................................................................ 14
 V

2.3.1 Empirical Literatures in Ethiopia ................................................................................... 14

2.3.2 Empirical Studies in Other Countries............................................................................. 18
2.4 Factors related with Loan Repayment Performance ...................................................... 20
CHAPTER THREE ...................................................................................................................... 24
RESEARCH METHODOLOGY.................................................................................................. 24
3.2 Methodology .................................................................................................................. 24
3.3 Study Area ...................................................................................................................... 25
3.4 Target Population and Sampling Technique .................................................................. 26
3.4.1 Target Population ........................................................................................................... 26
3.4.2 Sampling Technique....................................................................................................... 27
3.4.3 Sample Size .................................................................................................................... 28
3.6 Data Collection Method ................................................................................................. 30
3.7.1 Questionnaire ................................................................................................................. 30
3.7.2 Sources of Questionnaire ............................................................................................... 31
3.7.3 Type of Data ................................................................................................................... 32
3.7.4 Validity of Instrument .................................................................................................... 32
3.7.5 Reliability of Instrument ................................................................................................ 33
3.8 Data Analysis Method .................................................................................................... 34
RESULTS and DISCUSSIONS.................................................................................................... 36
4.1 Introduction .................................................................................................................... 36
4.2 Questionnaire Response Rate ......................................................................................... 37
4.3 Descriptive Data Analysis .............................................................................................. 38
4.3.1 Borrower-Related Characteristics .................................................................................. 39
4.3.1 Loan-Related Characteristics ......................................................................................... 48
4.4 Reliability Statistics........................................................................................................ 56
CHAPTER FIVE .......................................................................................................................... 58
SUMMARY, CONCLUSIONS and RECOMMENDAIONS ...................................................... 58
5.1 SUMMARY ................................................................................................................... 58
5.1.1 Borrower - related Characteristics.................................................................................. 58
5.1.2 Loan-Related Characteristics ......................................................................................... 60
5.2 CONCLUSIONS ............................................................................................................ 61
5.3 RECOMMENDATIONS ............................................................................................... 63
 VI

5.4 FUTURE RESEARCH RECOMMENDATIONS ......................................................... 63

REFERENCE................................................................................................................................ 64
Appendices - 1: Survey Questionnaire ......................................................................................... 72
Appendix - 2: Descriptive Statistics ............................................................................................. 75
 VII

LIST of ACRONYMS

AAU Addis Ababa University

BCC Branch Credit Committee

BUSEXP Business Experience

BUSTYP Business Type

COLSTR Collateral Strength

CRHIS Credit History

DDLON Demand for another Loan

HO Head Office

LONCNT Loan Contract

LONSZ Loan Size

LONUTL Loan Utilization

MFIs Micro Finance Institutions

NPLs Non-Performing Loans

OIB Oromia International Bank

SCRN Screening

SD Standard Deviation
 VIII

List of Tables

Table – 1.1: Settled Term Loans Performance of OIB during the last 6 Years .............................. 3

Table – 3.2: Developing Sample Size on the Basis of Purposive Sampling Technique ............... 29

Table – 4.3: Credit History versus Term Loans Repayment Performance ................................... 41

Table – 4.4: Business Experience versus Term Loans Repayment Performance ......................... 43

Table – 4.5: Education Level versus Term Loans Repayment Performance ................................ 44

Table – 4.6: Type of Business Sector versus Term Loans Repayment Performance ................... 46

Table – 4.7: Collateral Strength versus Term Loans Repayment Performance ............................ 47

Table – 4.8: Screening versus Term Loans Repayment Performance .......................................... 50

Table – 4.9: Demand for another Loan versus Term Loans Repayment Performance................. 51

Table – 4.10: Utilization of Loan versus Term Loans Repayment Performance ......................... 53

Table – 4.11: Size of Loan versus Term Loans Repayment Performance.................................... 54

Table – 4.12: Length of Loan Contract versus Term Loans Repayment Performance ................ 56

Table – 4.13: Reliability Statistics ................................................................................................ 57

 IX

Abstract

The main objective of this study was to assess successfully collected term loans performance -

considering the case of Oromia International Bank S.C (OIB). First-hand data was collected

using structured questionnaires from 196 selected samples of survey respondents of same bank

employees who directly engaged in day-to-day loan related administrations. A five - point Likert

Scale technique was adopted to collect and organize data about factors that can lead to

successfully settled term loans performances of OIB. Data analysis was then conducted by

employing basic descriptive statistics to examine the relative importance of factors of the study

in causing settled term loans performances of OIB. Considering descriptive results of mean and

respective standard deviation, the study revealed that business experience of borrowers

4.34(.745), utilization of loan for approved purpose only 4.11(.991), collateral strength

4.02(1.338), business type 3.99(.953), screening 3.99(1.1), credit history 3.95(1.184), demand

for other loan 3.74(.904), loan size 3.73(.968), length of loan contract 3.58(.933) and education

level 2.68(1.165) were study factors, in that order, that were rated in terms of their relative

importance towards leading to settled term loans performances of OIB. To achieve successful

term loans collection performance, the study recommends that, after properly screening out risky

loan applications, sufficient term loans amount should be extend against adequate repayment

periods by focusing on such borrowers that can demonstrate adequate business experiences in

running profitable or less risky business sectors, properly utilize loans for the approved purpose

only without diverting to other risky purpose, offer strong collaterals relative to the amount of

requested loans and also those borrowers that characterized by good truck of credit history in

the past.

Keywords: Settled Term Loans Performance, Relative Importance, Borrower-related factors and
loan-related factors.
 1

CHAPTER ONE

INTRODUCTION

In this chapter, background of the study, statement of the problem, the general and specific

objectives of the study, research questions, scope of the study, significance of the study,

limitations of the study and organizations of the study were discussed in details. Further, the

views of various authors indicated in this paper were assessed and discussed based on the

relevance of their respective opinions.

1.1 Background to the Study

Lending financial institutions must extend successful loans that are paid back in full if they

expect to earn high profits. It was argued that understanding the concept of credit worthiness is

very important as it encompasses the two very essential aspects related to borrower’s

characteristics: ability and willingness to repay a borrowed loan as per terms and conditions

stipulated in respective loan contracts (Michael, 2018). Borrowers’ ability and willingness to

repay a bank loan, in turn, can also be achieved through the two economic concepts: adverse

selection and moral hazard (William, 2018). To properly manage and hence overcome the

adverse selection and moral hazard problems, therefore, lending financial institutions have to

follow basic principles that required for managing credit risk that result in successful loans:

screening, monitoring, long-term customer relationships, loan commitments, collateral and

compensating balance requirements (Frederic, 2011).

One of the commercial bank’s lending decisions is to create long-run customer relationship. The

relationship determines the probability of customer staying with the bank which, in turn,

considered as a function of a loan extended as per customer’s request (Pekka, 2005). In order to

decide on the provisions of loan requests, Emre (2001) emphasized that lending financial
 2

institutions must collect information on the repayment capacity of their borrowers before and

after loan disbursement in the lending process. This process includes information gathered while

evaluating the loan and also subsequent information gathered after loan disbursement so as to

monitor the borrowers’ performances.

1.1.1 Loans and Advances Performance of OIB

According to its Annual Report (2018/19), OIB’s total gross outstanding Loans and Advances

plus IFB Financing reached Birr 17.4 billion as at June 30 2019, exhibiting a growth of 50% over

the position attained at the end of the preceding year. By its loans and advances plus IFB

financing, OIB has reached all sectors of the economy despite difference on the share of the

sectors. It is followed that regarding the composition of credit and financing, Domestic Trade

and Services (DTS) have taken the highest share of 30.6% of the portfolio followed by Export

23.4% share, Construction 12.1%, Industry 10.4%, Import 7.0%, Hotel and Tourism 5.6% and

mortgage also 5.3% share during the year.

1.1.2 Settled Term Loans Performance of OIB

In the past six years starting from 01 of July 2013 to 30 of June 2019 (as depicted in the Table -

1.1), the performances of those successfully settled term loans of OIB against different

categories of term loans economic sectors reached about 14,044 which approximated to Birr

10,126 billion as compiled from OIB’s OMNI system.

 3

Table – 1.1: Settled Term Loans Performance of OIB during the last 6 Years
Settled T/Loans
Number of Settled
SN Term Loans (by Sector) (Approximated in
Term Loans
Millions Birr)
1 AGRICULTRE TERM LOAN 158 270
2 INDUSTRY-TERM LOAN 173 723
3 DOMESTIC TRADE-TERM LOAN 10,341.00 6,010
4 EXPORT-TERM LOAN 610 657
5 IMPORT-TERM LOAN 761 654
6 CONSTRUCTION-TERM LOAN 1,051.00 1096
7 HOTEL & TOURISM-TREM LOANS 710 567
8 PERSONAL-TERM LOAN 137 45
9 MICRO-FINANCE INSTITUTION-TERM LOAN 101 101
10 MINES,POWER & WATER-TERM LOANS 2 3
TOTAL 14,044 10,126

Source: Compiled from OIB Account Opened/Closed System Generated Report – from
01/07/2013 to 30/06/2019.

Before extending any loan, the primary task of lending institutions is to assure itself that the

repayment capacity of the borrowing unit would indeed be materialized first. Following the

provisions of loans to borrowers, however, their subsequent repayment performance can be

either full settlement or otherwise. The focus of this study was to assess main causes that can be

resulted in successfully settled or collected term loans performances - the case of OIB.

1.2 Statement of the Problem

Lending financial institutions must extend successful loans that are paid back in full to have

successful settlement of the same if they expect to earn high profits. This signifies the concept of

borrowers’ credit worthiness which encompasses their ability and willingness to repay a

borrowed loan as per terms and conditions stipulated in respective loan contracts (Michael,

2018). Such borrowers’ ability and willingness to repay the borrowed loans, in turn, can also be

achieved by properly managing adverse selection and moral hazard (William, 2018). To properly
 4

manage and hence overcome the adverse selection and moral hazard problems, therefore, lending

financial institutions have to adhere to the following six basic principles that required for

managing credit risk that result in successful loans (Frederic, 2011): screening, monitoring, long-

term customer relationships, loan commitments, collateral and compensating balance

requirements.

The study conducted by Marcelina (2017) in assessing the impacts of social-economic factors on

loan repayment performance revealed that there is a significant relationship between business

characteristics (including size, age and location), individual borrowers’ factors (including the

education level, age and experience in borrowing), loan factors (interest rate, loan amount and

collateral) and the loan repayment. Furthermore, Abreham (2017) found that factors including

sex, income from other sources, monitoring, credit timeliness, repayment time suitability and

training adequacy influence loan repayment performance. Still, another study conducted by

Florence & Daniel (2014) established that education level, number of dependents, and hobbies

were individual characteristics influencing loan repayment. Business characteristics influencing

loan repayment were length of operation, management and type of business. Also the lenders

characteristics were groups handled, period taken to qualify new members and the criteria used

to evaluate credit worthiness.

In these reviewed studies, loan was broadly stated without indicating the category of loan type.

Also those studies were concentrated on micro financial institutions which have got different

operational as well as marketing strategies as compared to those employed by OIB. This study

thus sought to assess the relative importance of factors of the study (borrower and loan-related

factors) towards causing successfully settled term loans performances by focusing on one of the

commercial banks operating in Ethiopia, particularly the case of OIB. This study therefore
 5

sought to fill such knowledge gap by providing information on the factors that can lead to

successfully settled term loans performances of OIB.

1.3 Research Questions

In order to achieve the main objectives of the study, the following research questions were

developed:

a. What borrower-related factors can lead to settled term loans repayment performance

of OIB?

b. What loan-related factors can lead to settled term loans repayment performance of

OIB?

1.4 Objective of the Study

1.4.1 General Objective

The main objective of this study was to assess major factors that can lead to successfully settled

term loans performances of OIB.

1.4.2 Specific Objectives

The study attempted to achieve the following specific objectives:

A. To assess borrower-related factors such as credit history, business experience,

education level, business type and collateral strength that can lead to settled term

loans performance of OIB; and also

B. To assess loan-related factors such as screening, demand for other loan, utilization of

loan for the approved purpose only, loan size and length of loan contracts that can

lead to successfully settled term loans repayment performance – considering the case

of OIB.
 6

1.5 Significance of the Study

Proper credit management process has got a vital role in achieving sustainable provision of loans

to customers who are able to fulfill certain eligibility requirements set by lending commercial

banks. The provision of loans to the right customers after making adequate due diligence would

augment the expectations of having successful loan repayment performance and hence

contributes towards the success of that lending institution. Such success prospect can be achieved

only if each loan officer, branch managers and member of credit management committee able to

clearly identify those success factors that would influence term loans repayment performance

and hence contribute towards successfully settled term loans – considering the case of OIB.

Identifications of major factors that would cause successfully settled term loans performance is

believed to benefit OIB in order to effectively handle the flows of credit management processes.

For instance, the identifications of specific factors that can lead to successfully collected term

loans performance would enhance the overall credit management processes in terms of making a

well-informed credit decisions that would come into play particularly at the two extremes of loan

processing cycle: at pre-loan disbursement and post-loan disbursement phases.

Added to that, the outcome of this study will hopefully assist credit policy as well as loan

decision making management of OIB by rating the relative importance of those factors assessed

by the study in relation with successfully collected term loans performances of same bank.

Further, the finding of this study believed to add on some new sphere of knowledge to the

existing ones so as to have better understanding about factors that can lead to successful term

loans collection performances - considering the case of borrowers at OIB.

 7

Still, the study can also help any interested researchers who would like to conduct investigations

in connection with the same or any related topics of study by considering the case of any other

lending financial institutions.

1.6 Scope and Limitation of Study

1.6.1 Scope of the Study

The study was conducted by considering the repayment characteristics of those borrowers

specific to OIB who had successfully been settled their respective borrowed term loans. Also the

study was limited and hence grounded basically on some selected factors of interest: borrower-

related factors (credit history, business experience, education level, business type and collateral

strength) and loan-related factors (screening, demand for other loan, utilization of loan for the

approved purpose only, loan size and length of loan contracts) that can lead to successfully

settled term loans performance of OIB. By taking into account the objective of this study and

also the findings of relevant studies conducted in the past, the study has prioritized some factors

of interest that can influence the performance of successfully collected term loans – considering

OIB.

1.6.2 Limitations of the Study

This study was also characterized by difficulty to collect first-hand data from widely spread OIB

borrowers across the country due to limited time and resource constraints. In an attempt to

overcome such constraints, structured questionnaires were developed and distributed in order to

collect the required fist-hand data from different OIB staffs operating at various levels (loan

officers, credit analysts, loan recovery and follow up officers, branch managers in addition to

district and management credit committee) who directly involved with loan administrations.
 8

1.7 Organization of the Study

The major sections of the study were organized as follows: The first chapter tried to introduce

the overall background of the study. The second chapter dealt with the review of theoretical and

empirical related literatures on the evolution and importance of commercial banks; in addition to

factors that can influence repayment performance of borrowers. The third chapter presented the

research methodology adopted for the study which includes data collection and data analysis

techniques. The fourth chapter discussed about the results of the study findings and then

followed by the fifth chapter which presented conclusions accompanied by appropriate

recommendations about the study.

 9

CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

It was argued that there is perhaps nothing more important to a bank than the loans they make.

Loans and advances are one of the principal ways through which banks make money. Just as all

businesses have got their products to sell, commercial banks also have their own product: money

generated by extending various loan products. How? Well, banks make money by taking in funds

from depositors and other sources and then lending that money out to borrowing customers.

Here, banks generate money in the form of profit which is actually the difference between what

interest a bank must pay on deposit to obtain funds and the rate at which it charges borrowers on

the loan granted (Bill, 2017).

Meredith (2015) claimed that investment in ones business can also be achieved through the

provision of loans, besides own initial capital. The possibility of securing return on investment

from any business financed through bank loans, however, can be realized only if that business

managed to timely repay its obligations in line with the pre-determined terms and conditions

stipulated in a loan contract that duly signed between both parties: the bank and the borrower.

This chapter, thus, deals with both theoretical literatures and empirical studies undertaken by

previous researchers relevant to the study on hand. It tried to briefly discuss on such theoretical

topics consisting of Principles of Bank Lending Policies, Function of Commercial Banking, Term

loans in addition to Major Components of OIB Credit Tasks.

 10

2.2 Theoretical Literature Review

2.2.1 Principles of Bank Lending Policies

The following are basic principles of bank lending policies which normally come into play when

the commercial banks consider the establishment of lending policies for their operations as

summarized here under (Jhingan, 2008):

i. Liquidity - this suggests banks only make use of depositors’ money for business. These

depositors are usually entitled to their funds every time they are in need of the money.

Banks lend money for a short term because such money can be withdrawn at any time by

the depositors. That is why the banks advance loans on the understanding that they will

be repaid within a short time against security that can be easily marketable and

convertible into cash at a short notice.

ii. Safety - implies the safety of the funds lent out by the banks must be safe in a sense that

the borrower should be able to repay the loan and interest in time at agreed regular

intervals without defaults. Essentially, the repayment of loans depends on borrowers’

capacity to generate enough funds from business entities and the character of such

borrowers. Thus, lending banks should take into consideration the creditworthiness of the

borrowers which governs their character, capacity to repay, and financial standing.

i. Diversity -Jhingan (2008) further suggested that banks consider the composition of the

loan portfolio in line with the desired diversity of the investment in the process of

granting loans to customers. The loans being granted to customers are not normally

concentrated in a particular type of sector but in different types of sectors by spreading

loans to various industries, firms, businesses and trades. Hence, commercial banks need
 11

to strive to spread risks of investment in loan portfolio by giving out credits to various

trades and industries.

ii. Stability- Commercial banks only advance loans to customers whose businesses generate

stable incomes. Any project, business or any customer that applies for a loan facility

should thus be evaluated to determine the possibility of such ventures generating constant

income with which to serve the loan and make repayment on regular basis (Jhingan,

2008).

iii. Profitability- This is the last principles of bank lending policies indicated by Jhingan

(2008) which stated that loans and advances are usually granted with the intention of

earning some income for the banks. This income can only be earned by the bank through

the interest charges being made from the loans granted to customers. Banks earn income

because the interest rate being charged on loans by the commercial banks is normally

higher than the rate being charged against customer deposits.

Considering the status of loans repayment performance, loan classifications to international

standards, it was announced that banks had to place loans status in one of the following five

categories (Shelagh, 2005):

i. Normal/pass if the borrower is repaying on schedule;

ii. Special Mention if the loan is being repaid but there may be factors which interrupt

the loan repayment;

iii. Substandard whenever the income from the firm’s business is insufficient to service

the loan;
 12

iv. Doubtful the case where in the debtor unable to repay the loan and hence the bank

may incur losses and

v. Loss if either the principal and interest cannot be recovered or, with legal action, a

very small amount happened to be recovered.

According Michael (2018), lending financial institutions must extend successful loans that are

paid back in full if they expect to earn high profits. It is followed from a theoretical front that

understanding the concept of credit worthiness is very important as it encompasses the two very

essential aspects related to borrower’s characteristics: ability and willingness to repay a

borrowed loan as per terms and conditions stipulated in respective loan contracts. Borrowers’

ability and willingness to repay a bank loan, in turn, can also be achieved through the two

economic concepts known as adverse selection and moral hazard (William, 2018).

Adverse Selection - The idea behind this concept, according to William (2018), suggested the

situation of selecting very risky businesses which most likely to default because of the greater

possibility that borrowers will be unable to pay back their loans.

Moral Hazard – here also it was argued that the possibility of extending loans to borrowers who

- once they have obtained the loans - may have incentives to divert those loans to engage in risky

and/or undesirable activities that will most likely expose lending institution to hazard of default

(William, 2018).

To properly manage and hence overcome the adverse selection and moral hazard problems,

therefore, lending financial institutions have to adhere to the following six basic principles that

required for managing credit risk that result in successful loans (Frederic, 2011): screening,

monitoring, long-term customer relationships, loan commitments, collateral and compensating

 13

balance requirements. The following are brief descriptions of such basic principles suggested by

Frederic (2011) for managing credit risk of lending financial institutions as indicated next:

a. Screening is a pre-approval loan process that suggests screening out bad credit risks

from the good ones based on reliable information collected from prospective

borrowers so as to end up with successful loans.

b. Monitoring is another important principle of credit risk management that deals with

information-producing activities undertaken by lending institutions that monitor

borrowers’ overall business and loan performance after-loan approval.

c. Establishment of Long-term Customer Relationships refers to another way of

obtaining information on the basis of borrowers’ existing relationship (such as credit

history with the lending bank), which actually reduce the costs of information

collection and thus make it easier to screen out bad credit risks.

d. Loan Commitments implies a lending bank’s commitment to provide a borrower up

to a given amount of loans for a specified future repayment period of time which, in

turn, promotes a long-term relationship with a borrower and also facilitates the bank

with information about that borrower’s income, asset and liability position, overall

business activities, and so on.

e. Collateral Requirements is another important credit risk management tools

representing property promised to the lending institution as compensation in case the

borrower defaults. It also as a means to reduce moral hazard because the borrower has

more to lose from a default.

f. Credit Rationing means refusing to make loans as per the borrowers’ request even

though they are willing to pay the stated interest rate or even a higher rate. Such
 14

situation occurs when the lending bank is willing to make a loan but restricts amount

of approved loan size compared to the amount requested by a borrower.

2.2.2 Repayment Capacity of Borrowers

Van (2002) indicated that capacity refers to the ability of the borrower to repay the loan.

Investment credit which will yield sufficient profit will enable the borrower to repay the loan.

The surplus fund that would be resulted from net income after business expenses is used to repay

the credit. Most borrowers can easily repay the principal and interest. However, some of them

find it hard to repay the principal. Cash flow budgeting technique is used to assess repayment

capacity. Van (2002) suggested further suggested good financial management help to improve

the repayment capacity and the profitable use of credit in the following manner:

 Extending repayment along repayment time period;

 Planning repayments to coincide with income and

 Planning and running to minimize overhead costs.

2.3 Empirical Literatures Review

2.3.1 Empirical Literatures in Ethiopia

The outcome of another study conducted by Abreham (2017) suggested that independent

variables including sex, income from other sources, monitoring, credit timeliness, repayment

time suitability and training adequacy were significant and positively influence loan repayment

performance of borrowers of microfinance institutions.

Moreover, the finding of the study conducted by Metkel (2017) indicated that better repayment

performance is strongly and directly associated with suitability of repayment period and
 15

educational level of the borrower and respectively followed by income financed by the loan, age

of borrowers and educational status.

Ayele (2016) was also conducted a study with an objective to identify the determinants of

successful loan repayment performance in project financing in the case of DB of Ethiopia. The

finding of his study showed that among those explanatory variables including experience,

processing time, loan amount, follow-up, equity debt, distance, education, raw material,

management and market that were supposed to determine the repayment performance of project

financed by DB; variables such as managerial experience of project manager, loan processing

time, educational level, and number of supervisions conducted by the bank, project

implementation period and type of management have got statistically significant and positive

relationship with successful loan repayment performance of the bank in question.

In another study, Fikirte (2011) undertook an investigation to answer basic research questions

that, among others, intended to identify and analyze major determinants of loan repayment

performance which include socio-economic, business and loan related factors. After analyzing

the nature of relationship between loan repayment (dependent variable) and the combined

average effect of explanatory variables (individual client-,loan- and business-specific

characteristics); Fikirte concluded the following: experience of borrowers, age of borrowers,

saving money in the institution by the borrowers, availability of sufficient loan size and also a

continued supervision and follow-up found to be the significant factors that determine loan

repayment performance of the micro-financing institution of this study.

Godio (2012) also conducted a study with an objective to analyze and identify major

determinants of loan repayment in commercial banks. Particularly, the study aimed to answer as
 16

to which factors connected to individual client, socio-economic, loan and business can influence

loan repayment performance. Following the study, the researcher identified that the leading

causes for poor loan repayment performance of clients include delayed loan approval, inadequate

financing, diversion loan, ineffective credit appraisal request and poor monitoring, market

problem, young age group, higher cost of doing business, shortage of working capital, improper

use of loan against intended purpose, insufficient loan size, delay of loan disbursement and lack

of providing training by the bank are found to be the main reasons and challenges faced by the

lending bank.

Coming to another study, it is found that the following explanatory variables such as livestock

ownership, loan supervision, educational level, loan size amount, income from activities

financed by the loan, timeliness of loan release, suitability of loan repayment period, income

from other activities, age and loan diversions were found to be statistically significant in

determining loan repayment performance of women considered for the purpose of this study

(Medhin, 2015).

Referring to another study, Kibrom (2010) investigated borrowers-, project- and loan-related

characteristics to identify factors that can contribute towards a successful loan repayment

performance of borrowers of Development Bank of Ethiopia. After evaluating the functional

relationship between the explained variable (successful loan repayment) and a combined set of

the explanatory variables, it is found that educational level of the borrowers, repayment period of

the loan, availability of other source of income, business sector, purpose of the loan and type of

labour explains successful loan repayment performance of the borrowers positively and

significantly; whereas experience is statistically significant but show negative sign.

 17

Mesele et al (2016) aimed to identify and analyze those socio-economic, business- and loan-

related factors that explain loan repayment performance of the small scale enterprises of the

Wolaita Zone Micro Finance Institution (WZMFI). For the purpose of this study, the researchers

identified about 15 explanatory variables and an explanatory research method was used so as to

quantitatively describe the relationships among explanatory variables and the dependent variable

by using both primary and secondary data collected from such area of the study. The result of the

study revealed that, out of fifteen explanatory variables included in the model, only six of them

such as sex of household, educational status, dependency ratio, tropical livestock unit, value of

equipment and repayment suitability were found to be statistically significant. According to this

study, it is also found that, the age of respondents negatively and significantly determines the

loan repayment performance of borrowers whereas education level determines loan repayment

positively and significantly. Also it found that borrowers with small number or no dependants in

the household perform better in loan repayment.

Another study also conducted to examine the determinants of loan repayment performance

among smallholder farmers living in Kombolcha and Babile districts of East Hararghe zone,

Ethiopia (Million et al, 2012). The researchers used descriptive statistics and multiple

econometric techniques to analyze and investigate the relative importance of major independent

variables that supposed to influence loan repayment performance. Out of these explanatory

variables, the regression result of the study suggested that agro ecological zone, off-farm activity,

production loss, informal credit, celebration of social ceremonies, number of contact days

supervised by extension agents, and loan income ratio are appeared to be important factors that

determine loan repayment performance of small holder farmers in the study area.
 18

Dula (2016) conducted a study with the objective to identify socioeconomic factors that

influence loan repayment status of borrowers of the MFI named Busa Gonofa Microfinance of

Ziway branch. The researcher used descriptive statistics and multiple econometric methods were

employed in order to analyze socioeconomic factors that can influence their loan repayment

performance of MFI clients under consideration. The result of the study suggested that

independent variables such as loan diversion, family size and celebration of social ceremonies

showed a negative significant effect on loan repayment performance while the variables

including income from other activities, livestock holding, membership duration, loan supervision

and training on loan use have a significant positive effect on loan repayment performance.

2.3.2 Empirical Studies in Other Countries

The study findings conducted by Marcelina, (2017) in assessing the impacts of social-economic

factors on loan repayment performance revealed that there is a significant relationship between

business characteristics (including size, age and location), individual borrowers’ factors

(including the education level, age and experience in borrowing), loan factors (interest rate, loan

amount and collateral) and the loan repayment.

Also on the study conducted with an objective to assess the causes of NPLs, Phides (2013) found

that factors including moral hazards, inadequate business, financial, marketing, entrepreneurship

and management skills, fund diversion, multiple loans, adverse customer selection problem, poor

loan policy, inadequate loan monitoring and poor customer services appeared as the causes for

NPLs.

Another finding of the study conducted to assess the creditworthiness and repayment

performance revealed that while farmers with large total operating expenditure-income ratio,
 19

longer years of farming and older farmers with adequate supervision were credit worthy whereas

those farmers with better educational level and large farm sizes were non credit worthy (Nkem et

al, 2016).

According to another related study, Mohammad &Hooman (2009) identified variables affecting

repayment performance such as age, farm land hectares, experience, income, interest rate of

received loan, time laps between loan application and disbursement, whether respondent used

loan for investment activity, total application costs, whether respondent owned farm machinery,

loan size, collateral value and number of installments. Out of these variables, it is found that

farmer’s experience, income, loan size and collateral value had positive effect while loan interest

rate, total application costs and number of installment showed a negative effect on loan

repayment performance of borrowers.

Further, Amen (2011) studied factors related to borrower characteristics (such as age, gender,

educational level, other source of income and loan diversion), borrowers business (such as other

sources of credit, urban/rural area and marketplace), institutional characteristics (including loan

processing time, loan supervision, interest rates, screening criteria, grace period and loan size)

and environmental factors that can influence loan repayment behavior in the community banks,

Tanzania. Following the descriptive statistics and multiple regression analysis, the findings of

the study suggested that factors such as age, gender, other source of income, loan diversion,

availability of alternative source of credits, loan supervision, screening criteria and loan size

reveal positive relationship with respect to loan repayment; where as other independent factors

including education level, rural/urban area, borrowers market place, loan processing time and

interest rate showed negative relationship with loan repayment.

 20

As per another empirical study, Norhaziah & MohdNoor (2012) aimed to identify various factors

the influence loan repayment performance in microfinance programs, Malaysia. The finding of

the study revealed that factors such as age, religious education, total income and business

formality found to be negatively related with repayment performance; whereas other variables

including gender, business experience, distance to the lender office, number of time visit and

loan approval have got a positive relationship with repayment performance.

There is also another empirical study that conducted to specify major determinants of loan

repayment performance in Small Scale Enterprises (SSEs) located in Kariobangi Division,

Nairobi County. The finding of this study suggested that higher education level, large family

size, large amount of loan applied and longer duration of business result in increased loan

repayment performance, on one hand; while an increase in age, interest rate and change in

gender leads to more loan default, on the other (KIliswa Nancy, 2012).

According to another paper, Kenneth (2016) undertook an investigation with specific objectives

to identify lenders-, borrowers- and loan-related factors can influence loan repayments among

customers of commercial banks in Kenya - specific to Barclays Banks of Kenya limited. Using

multiple regression analysis, the study concluded that there is a significant relationship among

those individual borrowers-, lenders- and loan-related factors and loan repayment performance of

those customers considered for the purpose of this very study.

2.4 Factors related with Loan Repayment Performance

Following are the set of borrower- and loan-related factors that can lead to settled term loans

repayment performances of OIB borrowers who had successfully repaid different term loans

granted at different OIB branches operating across the country.

 21

2.4.1 Borrower-related Factors:

a. Credit History - implies past loan repayment history of a borrower with other

lending financial institutions. According to William & Richards (2007) indicated

credit history as one of the criteria for successful loan repayment and argued that

loans must be made only to those who present the least risk of failure to repay. Past

repayment history (that is good credit) is the first and probably the most important

requirement for a successful loan.

b. Business Experience - this is another borrower-related factor which refers to

borrower’s experience in running the business he/she/it actually engaged in. It is

stated as the number of years a borrower has acted in business is expected to

increase his/her/their/its productivity and thus to exert credit worthiness in the face

of lenders (Eze & Ibekwe, 2007).

c. Education – refers to the highest level of school a borrower have completed or the

number of years of formal schooling. It is considered as an indicator of credit

worthiness that would increase repayment capacity of borrowers. (Eze & Ibekwe,

2007).

d. Business Type – this is another borrower-related factor that implies the type of

business sector in which the borrower is engaged. It is argued that productive and

short-term yielding economic activities do likely increase the repayment capacity

than consumption and long-term yielding activities (Amen-Rabi, 2011)

e. Collateral – this suggested borrower’s collateral strength or collateral coverage

which can be offered as a security whenever the borrower planned to apply for

another or additional loan. Frederic, (2011) argued collateral as one of the important
 22

credit risk management tools representing property promised to the lending

institution as compensation in case the borrower defaults.

2.4.2 Loan-related variables:

a. Screening - a pre-approval selection process that helps to identity risky loan

applications from good ones based on reliable information collected about

prospective borrowers (Frederic, 2011).

b. Demand for Loan - is loan-related factor which indicates borrowers’ desire to

apply for another or additional loan after fully repaying outstanding balance of

existing term loan. Amen-Rabi (2011) stated that banks should establish appropriate

credit management environment which includes operation under sound loan

provision process, maintaining an appropriate loan repayment administration,

having clear procedures and criteria of evaluating loan applications.

c. Utilization of Loan - implies tendency of a borrower to utilize the disbursed loan

solely for the purpose it was originally approved for by lending financial

institutions without diverting (Abreham, 2017).

Size of Loan – this is another loan-related factor which represents granting

sufficient average loan amount relative to borrower’s repayment capacity that the

lending institutes approved to the borrowers business appraisals. Here, the

assumption is that the more the sufficient loan amount disbursed to the requesters,

the more they can finance the proposed business and the more they can succeed the

business profitably. On the other hand, the less approved loan size below the

proposed business plan to the borrower, the higher the possible difficulties they can

face while running the business due to insufficiency of funds available by the
 23

lending institutes. To mitigate these problems, efficient and effective utilization of

the loan funds could be very essential for the borrowers while running their

business (Abreham, 2017). This also represents granting sufficient average loan

amount based on cash flow budgeting technique is used to assess repayment

capacity (Van, 2002).

d. Duration of Loan - indicate the suitability of loan repayment period that agreed

between the lending financial institution and the borrower during which the

extended loan is expected to be fully repaid back to the lender (Metkel, 2017).
 24

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction

In this Chapter, the research identified the procedures and techniques that were used in the

collection, processing and analysis of data. This chapter focused on the research design used,

area of the study, target population of the study, the sampling design and the sample size in

addition to data collection instruments and data analysis techniques.

3.2 Methodology

A descriptive study design was chosen to access about factors that can lead to settled term loans

performance by considering the case of OIB into account. In attempt to achieve that, a

quantitative data analysis technique was employed in order to find out the relative importance of

factors of the study.

It was stated that quantitative data can be analyzed using descriptive statistics such as measure of

central tendency, frequencies, standard deviation and standard errors. Such descriptive analysis

used to investigate the relative importance of major study factors that can influence the loan

repayment performance of small holder fanners (Million, 2012).

Employing a descriptive research design thus can be used in order to organize, analyze and come

up with the study findings which then interpreted and discussed. Such descriptive analyses

approach was adopted to explain the relative importance of primary data collected from survey

respondents using the structured survey questionnaires. To analyze such collected data, a

quantitative research method was adopted based on the statistical data collected from respective

primary sources. That is to say, first hand data was collected from selected sample size of survey
 25

respondents using a convenient data collection instrument namely structured questionnaire that

was developed for the purpose of the study.

3.3 Study Area

The study focused on term loans repayment performance of OIB borrowers, who had been

settled the outstanding balances of their respective loans extended to them both at different city

and outlying branches of the same bank, were targeted as the specific area of the study on hand.

However, by considering the prime purpose of this study and also the availability of required

resources (such as time and cost constraints) that needed, the employees of OIB - who directly

engaged in daily loan administrations such as loan processing, credit appraisals, making credit

decisions and subsequent monitoring and follow up operations - were targeted as the specific

area of the study units from which survey respondents were selected to collect the required data

for the study.

Here it is worthy to emphasize that the core reason that motivated the researcher for

concentrating on OIB employees (who are responsible to handle and manage loan-related daily

activities) as the main source for the required data was subjected to the following: better

knowledge and understanding about subject matter of the study, literacy level needed to provide

appropriate survey responses, besides time and resource constraints that limited the need to

collect the required data directly from those OIB borrowers who spread throughout the country

where OIB branches actually operating.

 26

3.4 Target Population and Sampling Technique

3.4.1 Target Population

A population can represent collection of persons, things, or objects under study. For the purpose

of this study, target population consists of OIB staffs who directly work with loan administration

at different organizational levels that responsible for loan processing, credit decision making and

monitoring and follow-up operations of the bank under consideration.

The idea of sampling come into surface so as to select some portion from target population and

then conduct study on the portion (the sample) to gain information about that population (Susan

& Barbara, 2017). Another argument cited by Kenneth (2013) in his study suggested that

population is also known as a “universe” which refers to all the items in the field of inquiry

(Kumar, 2008).

The total numbers of study units or respondents which considered for the purpose of this study

were composed of 243 OIB employees who actually engaged in the day-to-day loan

administration activities - representing population targeted for the study. That is to say, the study

subject targeted for this study consisted of such study units namely different credit management

committee functioning at varied organizational levels of the bank in question (such as

Management Credit Committee (MCC), Department Credit Committee (DPCC), District Credit

Committee (DCC) and Branch Credit Committee (BCC)), in addition to different loan experts

responsible for handling loan processing and monitoring operations (such as Relationship

Managers, Credit Analysts, Loan and Monitoring Officers) who operate at head office, district

and also at different city and outlying OIB branches.

 27

3.4.2 Sampling Technique

A sample can be defined as a group of relatively smaller number of individuals or objects

selected from a population for investigation purpose. The members of the sample are called as

participants. The process through which a sample is extracted from a population is called as

sampling. Since it is not easy to investigate and assess every single element of a given

population, a group of individuals consisting of a smaller number need to be selected. On the

basis of information obtained from the sample (representative of the population), the inferences

are drawn for the population (Mohsin, 2016).

It was also suggested that survey sampling describes the process of selecting a sample of

elements from a target population in order to conduct a survey. The purpose of sampling is thus

to reduce the cost and/or the amount of work that it would take to survey the entire target

population (Ismail, 2012).

Regarding as to which sampling technique to employ for this study, defining the type of

appropriate sampling technique appeared to be very important in order to make the study more

meaningful and successful.

Although representative samples are produced by probability sampling, however, there are many

instances in which it turns out difficult - if not impossible - to use a probability sampling

technique. The prime purpose of the study was to collect the required data on factors that could

lead to successfully settled term loans performance of OIB borrowers. However, the limitations

of required resources such as time and finance have influenced the decision as to which sampling

technique to be used.
 28

It was argued that if the available resources such as time, cost and efforts are not enough and/or

if the study is meant at exploring an idea rather than understanding a population, non-probability

techniques are well suited. However, if enough resources are available or else if the research is

conducted to develop the understanding about the population, then probability sampling is

suggested (Mohsin, 2016).

Thus it is followed that this study employed a purposive sampling method (one of the non-

probability sampling technique) for two basic reasons: one was to access about factors that could

cause settled term loans repayment performance -case of OIB borrowers- by collecting a first-

hand data from OIB employees who directly deal with daily loan administrations. Another basic

reason of using purposive sampling technique was due to limited resources (such as time and

finance) that needed to conduct the study.

3.4.3 Sample Size

In order to represent population targeted for the study, selecting larger sample size enables to

minimize the possibility of making sampling error.

In support of the preceding argument, Mark & Natalia (2017) claimed that the natural variation

that results from selecting a sample to represent a larger population decreases as the sample size

increases. Mark & Natalia (2017) added that selecting larger samples reduces sampling error.

Further, it was suggested that a sample between 10-30% of the target population is considered

adequate for generalization of the findings to the whole population (Mugenda & Mugenda

(2003).

In attempt to select a representative sample, the subsequent table (Table – 3.2) was thus

developed by employing purposive sampling technique so as to assist the selection of required

 29

sample size that can lead to generalization of findings on behalf of population considered for this

study.

Table – 3.2: Developing Sample Size on the Basis of Purposive Sampling Technique
Selected
number of
Target
Units of Study Proportion study subjects
Population
(survey participants targeted for study) (purposive) (to whom
(Total)
questionnaires
distributed)
Branch Managers managing at City &
115 0.95 109
Outlying Branches of OIB
Loan Officers operating at City & Outlying
67 0.95 64
Branches of OIB
Credit Analysts & Loan Officers operating at
29 0.95 28
HO Credit Management Department of OIB
Monitoring & Loans Recovery Officers
Working at Monitoring& Recovery 11 0.95 10
Department of OIB
Members of District Credit Committee of OIB 12 0.80 10
Members of Credit Management Committee
9 0.80 7
at Head Office of OIB
Total 243 228
Source: Compiled from HR Record of OIB Staff dated 2018/19

Based on purposive sampling method that developed, as shown using Table – 3.2 indicated just

above, the sample size selected for the purpose of this study, therefore, computed to be 228,

which consisted of 109 branch managers, 64 branch loan officers, 28 credit analysts and loan

officers who operate in the Credit Management Department, 10 officers from Monitoring and

Follow-up Department, 10 members from District Credit committee and finally 7 members from

Management Credit Committee. To assure the representative capacity of those selected samples
 30

from 243 population of the study, the overall ratio of selected number of study subjects (that is

228) compared to the size of targeted population (that is 243) appeared to be about 0.94 or 94%.

Individual proportion of study units, which ranged from 0.8 to 0.95, were adopted to calculate

the intended sample size of the study from each of the respective study subjects - as depicted in

the Table - 3.2 above.

Out of the 288 total number of questionnaires that distributed out to those purposively selected

number of respondents, therefore, 196 of questionnaires were successfully responded and

returned back - representing the actual sample size of this study on which data collection, data

analysis and conclusion relied on.

3.5 Ethical Consideration

In this study, ethical issues were considered as a core concern while seeking access from

individual survey respondents during data collection process. In fact, the privacy and

confidentiality of data collected from participants of survey respondents was assured to them

through distributed data collection instruments indicating that the purpose of collecting the

required data remain purely academic and also given high consideration and respect. The

assurance was also provided in writing stating that no names and the collected data from

individual survey respondents going to be disclosed to third party in any ways.

3.6 Data Collection Method

3.7.1 Questionnaire

Questionnaire is one of the main methods available for collecting the required data from survey

participants discussed earlier who represent the study subjects of this thesis. In fact, the selection

of this method depends upon a number of factors: availability of resources needed to reach
 31

survey participants and hence collect first-hand data from the same, the literacy level of

respondents, knowledge about the subject matter of the study and motivation of the respondents

(Mathers, Fox &Hunn2009).

A five point Likert scale has been employed so as to transform attitudinal scale responses into

quantitative measure and hence represent a quantitative research method (Harry & Deborah,

2012).

Furthermore, it has also been argued that Likert scale data are analyzed using the interval

measurement scale. As far as the type of data analysis procedures concerned, descriptive

statistics were recommended for interval scale items which include the mean for central tendency

and standard deviations for variability (Harry & Deborah, 2012).

Regarding the type of data required for this study, the first-hand data was considered as the main

source that collected from survey participants. The process of data analysis was conducted using

a descriptive statistics so as to summarize collected data using such descriptive statistical

analysis including: frequency, center of data, spread of data, percentile, maximum and minimum

as appropriate.

3.7.2 Sources of Questionnaire

The questionnaire developed for the purpose of this study was devised by the researcher so as to

collect the required data from survey participants. For this matter, Mathers et al. (2009)

suggested that questionnaires can also be devised by the researcher with an option to design

his/her own questionnaire so at to gather the required data from primary sources.
 32

3.7.3 Type of Data

Survey questions designed to ask respondents are the basis of research findings and conclusions.

These questions constitute the ‘input’ for conclusions (the ‘output’). This input passes through a

series of steps – the selection of a sample, the collection of information, the processing of data,

the application of statistical procedures and the writing of a report – and the manner in which all

of these are done can affect the accuracy and quality of your conclusions (Ranjit, 2011).

Considering such reasons including limited literacy level of OIB borrowers targeted for the

purpose of the study, time and resource constraints; the first-hand data was collected from

selected samples of survey respondents of OIB employees, who directly involved in handling

and managing the overall loan-related daily operations.

The collections of such primary data from selected samples of respondents were accomplished

by considering the type of information needed for undertaking the study on hand. Of course,

such data was collected in connection with factors specific to borrowers- and loan-related

characteristics that can lead to settled term loans performances – considering the case of OIB.

3.7.4 Validity of Instrument

Validity is the ability of the measuring instrument to measure what it claims to measure or put

simply, it is the accuracy of measurement. It suggests whether or not the instrument measures

what is supposed to be measuring. As William &Frances (2012) stated, validity represents the

extent to which measurements actually measure what they are supposed to measure.

The question asking how it can be established that an instrument is measuring what it is

supposed to measure is very important since it underpins the basis of making judgment. For this
 33

matter, one of the available approaches preferred for checking the validity of instrument

(questionnaires) developed for the purpose of this study is regarded as content validity.

Referring to Mark (1995), content validity involves subjective measure of how appropriate

survey items seem to a set of intended reviewers who, of course, have got some basic knowledge

of the subject matter.

Applying the concept of content validity approach, therefore, survey questionnaires were

distributed to a group of reviewers consisting of 15 individuals who believed to possess loan-

related expertise. It turns out that, such individuals were reviewed the contents of survey so as to

ensure if it contained everything it should and doesn’t include anything that it shouldn’t.

To ensure validity, thus, the measuring instrument (questionnaire) was tested so as to ensure that

respondents had no problem in answering the questions and that there would be no problem in

recording data.

3.7.5 Reliability of Instrument

Reliability of instrument suggested the degree of stability exhibited when a given measurement

is repeated under identical conditions (Mark, L. (1995). It implies the extent to which the

research methodology and/or data produce the same results over a period of time. In other words,

if the conditions are constant and the same data are used, the output of the system should remain

at about the same level (William &Frances, 2012).

The concept of reliability can thus be looked at by posing a question: How reliable is an

instrument? The question focuses on the ability of an instrument to produce consistent

measurements. If we collect the same set of information repeatedly more than once using the
 34

same instrument and get the same or similar results under the same or similar conditions, an

instrument is considered to be reliable. Referring back to Ranjit (2011), reliability is the degree

of accuracy in the measurements made by a research instrument. That means, the lower the

degree of ‘error’ in an instrument, the higher the reliability.

How to measure the reliability of an instrument? There are a number of ways to assess the

reliability of an instrument. For the purpose of this study, however, the researcher tested the

reliability of the instrument applying the so called internal consistency reliability that measure

different aspects of the same concept. It measures internal consistency reliability among a group

of items combined to form a single scale which can be tested by computing the Cronbach’s alpha

(α): a statistic frequently employed to indicate the reliability (or internal consistency) of a

number of items that form a scale using the SPSS. More specifically, Mark, (1995) suggested

that internal consistency reliability determines a reflection of how well different items

complement each other in their measurement of different aspects of the same variable or quality.

Mark (1995) also added that one can conclude a scale is said to have good reliability if

Cronbach’s alpha computed to be ≥ 0.70.

3.8 Data Analysis Method

Considering the inconvenience associated with gathering the first-hand data from targeted

borrowers of OIB and also the limitation linked with time and finance constraints, the Likert

Scale procedure was used for measuring attitudinal responses of survey participants

quantitatively.

It is suggested that Likert scale items are created by calculating a composite score from four or

more Likert-type items. And the composite score for Likert scales can then be analyzed using the

interval measurement scale. Regarding the appropriate data analysis procedures using Likert
 35

Scales, descriptive statistics that were recommended for interval scale items include the mean for

central tendency and standard deviations for variability (Harry, B. & Deborah, B, 2012).

After collecting the required data, data analysis was conducted by employing descriptive

statistics such as Percentage, Frequency, the Mean and Standard Deviations (SD) values that

would help to generalize the relative importance of those factors of the study.
 36

CHAPTER FOUR

RESULTS and DISCUSSIONS

4.1 Introduction

In the preceding chapter, the research design employed for this study was presented and

discussed somehow in detail. The purpose of this chapter was to present the results of the study

followed by respective discussions; after conducting a detailed analysis of those data collected

from selected samples of survey participants. In attempt to describe the characteristics of data set

collected from primary sources, thus, descriptive statistical analysis was used to come up with

study conclusions.

It was argued that descriptive statistics summarizes or describes characteristics of a data set. It

consists of two basic categories of measures: measures of central tendency and measures of

variability or spread. Measures of central tendency describe the center of a data set whereas

measures of variability or spread describe the dispersion of data within the set. Descriptive

statistics, in short, help describe and understand the features of a specific data set by giving short

summaries about the sample and measures of the data (WILL, 2019). Furthermore, Sarang,

(2018) added that descriptive statistics involves summarizing and organizing the data so they can

be easily understood. Descriptive statistics, unlike inferential statistics, seeks to describe the data,

but do not attempt to make inferences from the sample to the whole population.

The results of descriptive statistics were used to describe the percentage (frequency), the center

and spread of data that were collected from selected samples of survey participants and hence

assess factors that can influence settled or fully repaid term loans repayment performance – by

taking OIB into account.

 37

To facilitate such descriptive analysis, therefore, the so called Statistical Package for Social

Science (SPSS) version 20.0 was employed to analyze and present data through descriptive

statistical analysis.

4.2 Questionnaire Response Rate

Out of 243 target populations of the study, questionnaires were distributed to a total number of

288 purposively selected study subjects. Out of such 228 distributed questionnaires, 196 were

successfully responded and returned back – representing 86% questionnaire response rates.

For this matter Kenneth, O. (2013) cited in his study by referring to Mugenda & Mugenda (2003)

that a response rate of 50% is adequate for analysis and reporting; a rate of 60% is good and a

response rate of 70% and over is excellent. It is followed that the response rate of this study,

which appeared to be more than 70%, was thus excellent and representative of the targeted

population of the study and it conforms to Mugenda and Mugenda (2003) argument.

Those 196 returned questionnaires, therefore, served as the basis for data analysis so as to

present the findings and draw conclusions. That is, out of 228 totally distributed questionnaires,

196 of them were successfully responded and collected back whereas the remaining 32

questionnaires were discarded - as most of them were not returned back and/or not properly

filled out as required. Therefore, the result of data analysis, discussions of the findings and

conclusions of the study were based only on those 196 successfully completed and returned

survey questionnaires.
 38

4.3 Descriptive Data Analysis

The subsequent descriptive statistics were used in attempt to conduct data analysis about factors

that could cause settled term loans repayment performance - considering the case of OIB. To

facilitate such analysis, the SPSS statistical package was employed so as to simplify the analysis

of data collected from survey respondents by employing some of basic descriptive statistical

tools. These descriptive statistics include:

• Frequency – to see the number of times each survey statement rated by respondents

of the study.

• Percentage – to assess the proportion of response rates and compare to judge the

relative importance of each factor of the study towards leading to the repayment

performance of fully repaid term loans – considering the case of OIB.

• The mean – to assess about the center of collected data from selected samples of

survey participants in terms of each factor of the study.

• Standard deviation – to assess the spread out of collected data about the mean

against each factor of this study (SPSS Tutorials, 2019).

The study required survey respondents to rate the relative importance of a given survey

statements dealing with borrower and loan related factors towards influencing successfully

settled term loans performance - by considering the case of OIB. In this case, therefore, each

factor was analyzed and discussed one after another with the help of the stated descriptive

statistical tools as presented next. That is, subjects of the study were asked to rate both borrower-

and loan-related factors of the study or survey statements by considering the level of their

importance in causing successfully settled term loans of OIB using a five-point Likert Scale. The

rating was undertaken based on the following rating scales:

 39

 (1) if not important;

 (2) if less important;

 (3) if moderately important;

 (4) if important; and

 (5) if very important.

The discussions of data analysis were thus made based on the above rating points to reach at

conclusions about each factor of the study.

4.3.1 Borrower-Related Characteristics

Here descriptive data analysis was carried out considering the following borrower specific

factors: Credit History, Business Experience, Education Level, Business Type and Collateral

Strength. In this line, survey respondents were requested to rate these factors (using a five point

Likert Scale from 1 to 5 respectively against the following: not important, slightly important,

moderately important, important or very important) by considering the extent of their relative

importance towards leading to successfully settled term loans performance of OIB. To discuss

the relative importance of each factor of the study, therefore, the analysis was conducted by

considering the mean score value of each study factor that generated after running the SPSS

package.

a) Credit History:

Referring to Table 4.3 shown bellow, the descriptive result of survey response rates regarding the

importance level of borrowers’ credit history record with lending financial institutions in the past

- towards leading to successfully settled term loans performance of OIB - can be described as

next. It is followed that, out of the total number of 196 subjects of the study, 14 (7.1%) of them
 40

believed that credit history is not important, 11 (5.6%) believed that credit history is slightly

important, 25 (12.8%) indicated credit history is moderately important, 67 (34.2%) believed that

credit history is important and the remaining 79 (40.3%) of respondents rated that credit history

is very important.

Though the descriptive result of the study revealed that the majority of study units (that is 79

(40.3%)) rated credit history as ‘very important’, however, the resulting mean 3.95 value

suggested that credit history is rather near or close to ‘important’. This suggestion is so because

the mean value 3.95 of the study is fairly close to the scale value allotted for survey statements

rated as ‘important’, which is 4, in causing successfully collected term loans performance of OIB

- as indicated in the questionnaires developed for the purpose of this study.

In general, based the resulting mean value of the study, survey respondents agreed that credit

history can be fairly viewed as important towards leading to successfully settled term loans

performances of the bank under consideration.

Thus the descriptive result suggested that extending term loans to existing as well as new credit

applicants, that characterized by good truck of loan repayment performances in the past with

respect to any lending financial institutions, can be lead to successfully settled term loans

performances of OIB. That is, granting term loans to borrowers having good record of past credit

information with any lending commercial bank seem to be resulted in fully repaid term loans

repayment performances the bank under question. This is so because credit history represents

record of a borrower’s ability to repay debts and can demonstrates borrower’s responsibility in

repaying debts. Whenever credit is requested, thus, borrower’s credit history is used to assess
 41

how he/she/it/they/ manage previous financial responsibilities and thus decide whether to grant a

loan or not by looking into credit reports.

Table – 4.3: Credit History versus Settled Term Loans Performance

Credit History (CRHST)

Value Count Percent
Measurement Scale
Valid 196
N
Missing 0
Central Tendency and Mean 3.95
Dispersion Std. Deviation 1.184
1 Not Important 14 7.1%
2 Slightly Important 11 5.6%
Labeled Values 3 Moderately Important 25 12.8%
4 Important 67 34.2%
5 Very Important 79 40.3%

Source: SPSS Output of Survey Data

b. Business Experience:
As shown in the Table 4.4 shown under, the descriptive result of respondents’ survey responses

while rating the importance level of borrowers’ business experience in causing successfully

settled term loans performance of OIB can be discussed as follows. Out of the total number of

196 of survey respondents, none of them believed that business experience is not important, 5

(2.6%) believed that business experience is slightly important, 17 (8.7%) indicated business

experience is moderately important, 80 (40.8%) believed that business experience is important

and the remaining 94 (48.0%) of respondents rated that business experience is very important.
 42

Here also even if the descriptive result of the study showed that the majority of respondents (that

is 94 (48.0%)) rated business experience as ‘very important’, it is fair to argue that this factor

(business experience) is important in leading to successfully settled term loans performance of

OIB; since the resulting mean value 4.34 obtained against business experience is rather near to

‘important’. This is to say, since the mean value 4.34 of the study is fairly close to the scale value

allotted for survey statements rated as ‘important’, which is 4, in leading to successfully

collected term loans performance of OIB - as indicated in the questionnaires developed for the

purpose of this study.

In general, based on the above discussion regarding the importance level of business experience,

the study units agreed that business experience can arguably viewed as important towards

leading to successfully settled term loans performances of the bank under consideration.

Thus the study result suggested that granting term loans to those borrowers having sufficient

years of business experience - in relation with the type of business sectors in which they have

actually been engaged in - can lead to successful repayment performances. Extending term loans

to applicants who believed to exactly know how to successfully run the type of business he/she/it

expected to manage could be resulted in fully repaid term loans repayment performances. That

is, borrowers with better knowledge and experiences on the relevant businesses can profitably

run their businesses. Even if crises happen to specific business segment, borrowers with previous

business exposures may recover their business and will succeed consequently contrary to

borrower with no or less business experience. The good experienced the borrowers are, the more

they can succeed their business and repay the loan timely. On the other hand, the less they are

experienced the highest the probability of being defaulters they are.

 43

Table – 4.4: Business Experience versus Settled Term Loans Performance

Business Experience (BUSEXP)
Value Count Percent
Standard Attributes Measurement Scale
Valid 196
N
Missing 0
Central Tendency and Mean 4.34
Dispersion Std. Deviation .745
1 Not Important 0 0.0%
2 Slightly Important 5 2.6%
Labeled Values 3 Moderately Important 17 8.7%
4 Important 80 40.8%
5 Very Important 94 48.0%

Source: SPSS Output of Survey Data

c. Education Level:

Referring to Table 4.5, the study result of survey response rates about the importance level of

borrowers’ education level towards leading to successfully collected term loans performance of

OIB depicted this: out of the total number of 196 of survey respondents, 43 (21.9%) of them

believed that education level is not important, 38 (19.4%) believed that education level is slightly

important, 61 (31.1%) indicated education level is moderately important, 47 (24.0%) believed

that education level is important and the remaining 7 (3.6%) of respondents rated that education

level is very important.

However, even the descriptive result of the study showed about 61 (31.1%) of respondents rated

education level as ‘moderately important’, it is evident to argue that this study factor (i.e.

education level) appeared less or slightly important in causing successfully settled term loans

performance of OIB. This view point is so because the resulting mean value 2.68 that generated
 44

against borrower’s education level is rather close to ‘slightly important’ since this mean value

(i.e.2.68) is rather some how far away from survey scale value (i.e. 3) that actually fixed for

rating ‘moderately important’ - as indicated in the questionnaires developed for this study. So

based on the mean value discussed just above, education level can arguably be labeled as slightly

important in causing successfully settled term loans performances – considering the case of OIB.

Thus looking into the study result shown in the Table 4.5, respondents agreed that borrowers’

education level representing the highest level of education a person received and successfully

completed appeared to be the least important factor while comparing with other borrower related

factors of the study towards influencing successfully repaid term loans repayment of OIB. That

is, the scored mean value of 2.68 that computed based on survey response rates suggested that

the majority of survey respondents perceived education level as the least borrower-related factor

in causing successfully settled term loans repayment performance when compared with the other

borrower-related factors considered in this study.

Table – 4.5: Education Level versus Settled Term Loans Performance

Education Level (EDU)
Value Count Percent
Standard Attributes Measurement Scale
Valid 196
N
Missing 0
Central Tendency and Mean 2.68
Dispersion Standard Deviation 1.165
1 Not Important 43 21.9%
2 Slightly Important 38 19.4%
Labeled Values 3 Moderately Important 61 31.1%
4 Important 47 24.0%
5 Very Important 7 3.6%
Source: SPSS Output of Survey Data
 45

d. Business Type:

Referring to Table 4.6 shown bellow, the descriptive result of survey response rates regarding the

importance level of borrowers’ business type towards leading to successfully settled term loans

performance of OIB revealed that; out of the total number of 196 subjects of the study, 7 (3.6%)

of them believed that business type is not important, 5 (2.6%) believed that business type is

slightly important, 32 (16.3%) indicated business type is moderately important, 90 (45.9%)

believed that business type is important and the remaining 62 (31.6%) of respondents rated that

borrowers’ business type indicated as very important.

Here the result of the study depicted that most of study subjects (that is 90 (45.9%)) rated

business type as ‘important’ and also the resulting mean value of 3.99 (which appeared very

close to 4 of survey rating scale) thus suggested that borrowers’ business type is fair to be

considered as important. This suggestion is so because the resulted mean value 3.99 is very close

to the scale value (i.e. 4) which was allotted for rating survey statements denoted as ‘important’,

in causing successfully collected term loans performance of OIB.

Thus the result of this study factor suggested that extending term loans to borrowers who

supposedly engaged in a profitable type of businesses (such as sole proprietorship, partnership,

corporation, or private limited company) believed to cause successfully settled term loans

performances considering the case of OIB. Stated differently, granting term loans to those

arguably less risky business sectors could save lending commercial bank under question from the

possibility of NPLs and hence this can be perceived as the main reason to have a well performing

term loans that could be lead to successful collection performances.

 46

Table – 4.6: Type of Business Sector versus Settled Term Loans Performance
Type of Business (BUSTYP)
Value Count Percent
Standard Attributes Measurement Scale
Valid 196
N
Missing 0
Central Tendency and Mean 3.99
Dispersion Standard Deviation .953
1 Not Important 7 3.6%
2 Slightly Important 5 2.6%
3 Moderately Important 32 16.3%
Labeled Values
4 Important 90 45.9%
5 Very Important 62 31.6%
Source: SPSS Output of Survey Data

e. Collateral Strength:
Survey respondents further requested to rate the importance level of collateral strength in causing

successfully settled term loans performances of OIB. Accordingly, the subsequent Table 4.7

depicted that, from the total number of 196 subjects of the study, 22 (11.2%) of them believed

that collateral strength is not important, 9 (4.6%) believed that collateral strength is slightly

important, 14 (7.1%) indicated collateral strength is moderately important, 50 (25.5%) believed

that collateral strength is important and the remaining 101 (51.5%) of respondents rated that

collateral strength as is very important towards leading to successfully settled term loans

performances of the bank under study.

Again here, although the descriptive result of this study factor (i.e. collateral strength) showed

the majority of respondents or 101 (51.5%) of them rated education level as ‘very important’, it

is evident from respective mean value 4.02 that this study factor rather appeared as important in

causing successfully settled term loans performance of OIB. This is so because the resulting

mean value 4.02 that generated against borrower’s collateral strength found almost the same as
 47

the rating scale value (i.e. 4) which was allotted for rating survey statements that believed to be

‘important’ (just as indicated in the questionnaires developed for the purpose of this study). In

general, borrowers’ education level hence can be regarded as important towards causing

successfully settled term loans performances of OIB.

Thus by looking into the study result depicted under Table 4.7, the majority of survey

respondents agreed that the estimation value of collateral relative to loan outstanding balance can

be perceived as the main reason to have successfully settled term loans performance of OIB.

Stated differently, borrowers who offered collateral having strong market value relative to the

outstanding balances of previously extended term loans usually tended to successfully settle such

existing outstanding balance of loans with an aim to apply for an increased amount of another

loan from OIB or other lending commercial banks.

Table – 4.7: Collateral Strength versus Settled Term Loans Performance

Collateral Strength (COLSTR)
Value Count Percent
Standard Attributes Measurement Scale
Valid 196
N
Missing 0
Central Tendency and Mean 4.02
Dispersion Standard Deviation 1.338
1 Not Important 22 11.2%
2 Slightly Important 9 4.6%
Labeled Values 3 Moderately Important 14 7.1%
4 Important 50 25.5%
5 Very Important 101 51.5%

Source: SPSS Output of Survey Data

 48

4.3.1 Loan-Related Characteristics

At this point, descriptive analysis was conducted against the subsequent loan specific factors of

the study such as screening, demand for other loan, utilization of loan, size of loan and duration

of loan. Just as the case with borrower specific factors discussed above, here also survey

respondents were requested to rate loan related survey statements using a five point Likert Scale

from 1 to 5 respectively against the following: not important, slightly important, moderately

important, important or very important by considering the extent of their relative importance in

causing settled term loans performance of OIB. To compare such relative importance of those

selected loan-related factors, the analysis was conducted by considering the mean score value of

each study factor that generated after running the SPSS package.

a. Screening:

Furthermore the subjects of the study requested to rate the importance level of screening in

leading to successfully settled term loans performances of OIB. As shown in the Table 4.8 that

follows, out of the total number of 196 subjects of the study, 10 (5.1%) of them believed that

screening is not important, 9 (4.6%) believed that screening is slightly important, 32 (16.3%)

indicated screening is moderately important, 67 (34.2%) believed that screening is important and

the remaining 78 (39.8%) of respondents rated that screening as is very important in leading to

successfully settled term loans performances of OIB.

But even if the descriptive result of this study factor (i.e. screening) showed that the majority of

respondents or 78 (39.8%) of them rated screening as ‘very important’, it is evident from

respective mean value 3.99 that such study factor rather seems important towards leading to

successfully settled term loans performance of the bank under consideration. This argument is so

since the resulting mean value 3.99 that generated against screening found very close to the
 49

survey scale value (i.e. 4) that was allotted for rating survey statements that believed to be

‘important’ in causing successfully settled term loans performance - just as indicated in the

questionnaires developed for the purpose of this study. So, screening can generally be considered

as important in leading to successfully settled term loans performances of OIB.

Therefore, the response rates provided by survey respondents suggested that the practice of

enforcing properly endorsed due diligence to safeguard against the possibility of adverse

selection (i.e. selecting very risky businesses which most likely to default because of the greater

possibility that borrowers will be unable to pay back their loans) and also getting into moral

hazards (i.e. extending loans to borrowers who may have incentives to divert disbursed loans to

engage in risky activities other than the approved purposes). Laying down such efforts to sort

out bad loan applications from the good ones can enhance determine risks associated with

extending loans and thus pave away to have successfully collected term loans repayment OIB. In

fact, this process can also be achieved by using the 5C’s framework by lenders in order to

determine a potential borrower’s creditworthiness towards deciding whether he/she/they/it is

eligible for credit: character (a borrower’s general trustworthiness, credibility and personality),

capacity (whether a borrower’s business generates enough cash flow to signify the ability to

repay a loan in full), collateral (borrower’s assets that are used to guarantee or secure a loan),

capital (amount of money invested by a potential borrower or business owner), and conditions

(to determine conditions under which borrower’s business operating by considering the state of

the economy and industry trends).

 50

Table – 4.8: Screening versus Settled Term Loans Performance

Screening (SCRN)
Value Count Percent
Standard Attributes Measurement Scale
Valid 196
N
Missing 0
Central Tendency and Mean 3.99
Dispersion Standard Deviation 1.100
1 Not Important 10 5.1%
2 Slightly Important 9 4.6%
Labeled Values 3 Moderately Important 32 16.3%
4 Important 67 34.2%
5 Very Important 78 39.8%

Source: SPSS Output of Survey Data

b. Demand for other Loan:

Moving on the subjects of the study requested to rate the importance level of demand for loan in

causing successfully settled term loans performances of the bank in question. As evident in the

Table 4.9 that follows that out of the total number of 196 subjects of the study, 5 (2.6%) of them

believed that demand for loan is not important, 10 (5.1%) believed that demand for loan is

slightly important, 51 (26.0%) indicated demand for loan is moderately important, 94 (48.0%)

believed that demand for loan is important and the remaining 36 (18.4%) of respondents rated

that demand for other loan as is very important towards leading to successfully settled term loans

performances of OIB.

But, even the descriptive result of this study factor under consideration showed that the majority

of respondents or 94 (48.0%) rated same factor as ‘important’, it can be seen from its respective

mean value 3.74 that this study factor rather seemed close to important towards leading to
 51

successfully settled term loans performance of the bank under consideration. This is so because

the resulting mean value 3.74 that generated against demand for loan appeared to be close

somehow to the survey scale value (i.e. 4) that was allotted for rating survey statements that

believed to be ‘important’ while rating factors that can lead to successfully settled term loans

performance of OIB. Hence, demand for other loan can generally be considered as important in

leading to successfully settled term loans performances of the bank under study.

Thus, it is followed that the result of the study suggested that OIB’s borrowers usually tend to

settle the outstanding balance of existing term loans with an aim to apply for another or increased

loans amount. That is, the need to apply for an increased amount or other loans and use the fund

as additional working capital for running his/her/their/its business could serve as incentive and

hence motivate such borrowers to settle the existing balances of previously extended term loans.

Table – 4.9: Demand for another Loan versus Settled Term Loans Performance

Demand for another Loan (DDLON)

Value Count Percent
Standard Attributes Measurement Scale
Valid 196
N
Missing 0
Central Tendency and Mean 3.74
Dispersion Standard Deviation .904
1 Not Important 5 2.6%
2 Slightly Important 10 5.1%
Labeled Values 3 Moderately Important 51 26.0%
4 Important 94 48.0%
5 Very Important 36 18.4%

Source: SPSS Output of Survey Data

 52

c. Utilization of Loan:

Again respondents of the study asked to rate their view regarding the importance level of

utilization of loan only for the purpose it originally approved towards causing successfully

settled term loans performances of the bank in question. As evident in the Table 4.10 that follows

that out of the total number of 196 subjects of the study, 1 (0.5%) of them believed that

utilization of loan is not important, 5 (2.6%) believed that utilization of loan is slightly important,

30 (15.3%) indicated utilization of loan is moderately important, 84 (42.9%) believed that

utilization of loan is important and the remaining 76 (38.8%) of respondents rated that utilization

of loan as is very important towards leading to successfully settled term loans performances of

the bank under study.

Here the result of the study depicted that most of study subjects (i.e. 84 (42.9%)) rated loan

utilization as ‘important’ which seemed agree with the resulting mean value of 4.17 of the study

factor under consideration. That is, since the resulted mean value 4.17 found to be very close to

survey scale value (i.e. 4) which allotted to rate survey statements that viewed as ‘important’ in

causing successfully collected term loans performance of OIB. Generally, the utilization of loan

thus can be seen as important towards leading to successfully settled term loans performances of

the bank under consideration.

This is therefore, survey respondents of this study viewed that proper utilizations of disbursed

term loans only for the approved purpose by credit management committee of the bank under

consideration can be lead to successfully repaid term loans performance. This means, proper

utilization of granted term loan without diverting to any risky purpose other - than that it has

originally been disbursed - can be lead to successfully settled term loans performance of OIB.
 53

Table – 4.10: Utilization of Loan versus Settled Term Loans Performance

Utilization of Loan (LONUTL)
Value Count Percent
Label Utilization of Loan
Standard Attributes
Measurement Scale
Valid 196
N
Missing 0
Central Tendency and Mean 4.17
Dispersion Standard Deviation .815
1 Not Important 1 0.5%
2 Slightly Important 5 2.6%
Labeled Values 3 Moderately Important 30 15.3%
4 Important 84 42.9%
5 Very Important 76 38.8%

Source: SPSS Output of Survey Data

d. Size of Loan:

The same respondents further asked to rate the importance level of disbursed loan size in relation

with requested amount in causing successfully settled term loans performances of OIB. As

depicted in the Table 4.11 that follows that out of the total number of respondents, 6 (3.1%) of

them believed that loan size is not important, 12 (6.1%) believed that loan size is slightly

important, 53 (27.0%) indicated loan size is moderately important, 83 (42.3%) believed that loan

size is important and the remaining 42 (21.4%) of respondents rated that loan size as is very

important towards leading to successfully settled term loans performances of the bank under

question.

Here, the study result indicated that most of respondents (i.e. 83 (42.3%)) rated loan size as

‘important’ which is fairly close to the resulting mean value 3.73 of factor the study under
 54

consideration. That is, since the resulted mean value 3.73 appeared to somehow close to survey

scale value (i.e. 4) which fixed to rate survey statements as ‘important’ towards causing

successfully collected term loans performance of OIB. Reasoning that way, loan size thus can be

considered as important in leading to successfully settled term loans performances of the bank

under consideration.

Based on the above discussions, the respondents of this study believed that granting the

sufficient amount of loan size by considering such factors including the size of requested loan

against borrower’s credit history, the value of offered collateral to secure the loan, the repayment

capacity and nature cash flows of a borrower can lead to successfully collected term loans

performance of OIB.

Table – 4.11: Size of Loan versus Settled Term Loans Performance

Size of Loan (LONSZ)
Value Count Percent
Standard Attributes Measurement Scale
Valid 196
N
Missing 0
Central Tendency and Mean 3.73
Dispersion Standard Deviation .968
1 Not Important 6 3.1%
2 Slightly Important 12 6.1%
Labeled Values 3 Moderately Important 53 27.0%
4 Important 83 42.3%
5 Very Important 42 21.4%

Source: SPSS Output of Survey Data

 55

e. Duration of Loan:

As depicted in Table 4.12, survey respondents also asked to rate the importance level of duration

of loan contract in relation with repayment capacity and cash flows towards achieving

successfully settled term loans repayment of OIB. It is followed that out of the total number of

subjects of the study, 7 (3.6%) of them believed that duration of loan contract is not important,

13 (6.6%) believed that duration of loan contract is slightly important, 63 (32.1%) indicated

duration of loan contract is moderately important, 86 (43.9%) believed that duration of loan

contract is important and the remaining 27 (13.8%) of respondents rated that duration of loan

contract as is very important towards leading to successfully settled term loans performances of

the bank under study.

Even the descriptive result against the study factor on hand showed that the majority of

respondents or 86 (43.9%) rated same factor as ‘important’, but it can be seen from the resulting

mean value 3.58 that this factor of the study (i.e. duration of loan) rather matched with survey

rating scale labeled as to ‘moderately important’ in causing successfully settled term loans

performance of OIB. That is, since the mean value 3.58 that generated against duration of loan

contract is not large enough with scale value (i.e. 4) that allotted for rating survey statements that

believed to be ‘important’ in leading to successfully settled term loans performance of the bank

of the study. Generally the duration of loan contract can be viewed as moderately important

towards causing successfully settled term loans performances of the bank under question.

Thus considering the discussions made just above, respondents of the study agreed that granting

the required amount of loan by considering enough length of loan duration (in years) and also by

taking into account a fitting mode of installment period (monthly, quarterly, semi annually or

annually that would match with the repayment capacity and cash flows borrowers) within which
 56

borrowers could conveniently repaid back the borrowed loans can lead to successfully settled

term loans performance of the bank under study.

Table – 4.12: Length of Loan Contract versus Settled Term Loans Performance
Length of Loan Contract (LONCNT)
Value Count Percent
Standard Attributes Measurement Scale
Valid 196
N
Missing 0
Central Tendency and Mean 3.58
Dispersion Standard Deviation .933
1 Not Important 7 3.6%
2 Slightly Important 13 6.6%
Labeled Values 3 Moderately Important 63 32.1%
4 Important 86 43.9%
5 Very Important 27 13.8%

Source: SPSS Output of Survey Data

4.4 Reliability Statistics

Mark (1995) suggested that internal consistency reliability determines a reflection of how well

different items complement each other in measuring different aspects of the same variable or

quality. Further, Mark added suggesting that a scale is said to possess a good reliability if the

resulted value of Cronbach’s alpha ≥ 0.70.

In this line, the subsequent to the descriptive analysis discussed in the preceding section, the

reliability analysis based on ten borrower- and loan-related factors of the study that indicated in

the previous sections has also been done using Cronbach’s Alpha in order to insure the internal

consistency of the questionnaires structured for the study and see if the survey scale measured
 57

the same construct. In this regard, the Cronbach’s Alpha result approximated to 0.78 was

produced after running the statistical package called SPSS (Please look at Table – 4.13).

Table – 4.13: Reliability Statistics

Cronbach's Alpha N of Items
.784 10

Source: Study Output based on collected Data

 58

CHAPTER FIVE

SUMMARY, CONCLUSIONS and RECOMMENDAIONS

The preceding chapter discussed the overall findings of the study in detail. Based on such

findings, thus, this chapter tried to present the summary of the study findings followed by

conclusions and appropriate recommendations – one after another.

5.1 SUMMARY

It is a common knowledge to say that any academic writing has got its own objective. As such,

the main objective of this study was to assess and hence identify factors that can lead to fully

repaid term loans repayment performance – considering the case of Oromia International Bank

Share Company. Accordingly, the summarized findings on both borrower- and loan-related

factors that lead to Settled Term Loans Repayment Performance of the study was hereby

presented next.

5.1.1 Borrower - related Characteristics

a. Credit History

The descriptive result of respondents suggested that extending term loans to existing as well as

new credit applicants who characterized by good truck of loan repayment performances in the

past with respect to any lending financial institutions can lead to successfully settled term loans

repayment performance. Stated differently, disbursing term loans to borrowers having good

record of past credit information with any commercial bank can be resulted in fully repaid term

loans repayment performances.

 59

b. Business Experience

The preceding descriptive result depicted that granting term loans to those borrowers having

sufficient years of business experience - in relation with the type of business sectors in which

they have actually been engaged in - can lead to successful repayment performances. That is to

say, extending term loans to credit applicants who believed to know how to successfully run the

type of business he/she/it expected to manage could be resulted in fully repaid term loans

repayment performances.

c. Education Level

Respondents agreed that education level of borrowers appeared to least important while

compared with other factors of the study in causing successfully repaid term loans repayment

performances. That is, the scored mean value of 2.68 that computed based on survey response

rates suggested that the majority of survey respondents perceived education level as the least

borrower specific factor in relation with successfully settled term loans repayment performance –

compared with the other borrower-related factors considered in this study.

d. Business Type

The study suggested that extending term loans to borrowers who engaged in a profitable type of

businesses believed to be resulted in successfully settled term loans repayment performances. In

other words, making the disbursement of any term loans to those arguably less risky business

sectors could save lending commercial banks from the possibilities of NPLs and hence this can

also be perceived as the main reason to have a well performing term loans that could be lead to

the intended successful repayment performances.

 60

e. Collateral Strength

The majority of survey respondents selected for the study agreed that the estimation value of

collateral can be perceived as the main reason to have successfully settled term loans repayment

performance. That means borrowers who offered collateral with strong market value usually

tended to successfully repay the outstanding balance of their existing term loans with an aim to

apply for an increased amount of another loan from lending commercial banks.

5.1.2 Loan-Related Characteristics

a. Screening

The response rates provided by survey respondents suggested that the practice of enforcing

properly endorsed due diligence and also the efforts laid down at the early stage of pre-approval

of borrower selection process can heavily enhance any lending financial institutions the

possibility of having successfully repaid term loans repayment performances. That is, sorting out

or rejecting highly risky term loans applications from the good ones can be resulted in fully

repaid term loans.

b. Demand for Another Loan

The study also suggested that borrowers of commercial banks usually tend to fully repay the

outstanding balance of their existing term loans with an aim to apply for another increased loans

amount. That is, the need to apply for an improved amount of future loans could motivate the

borrowers so as to properly repay back the remaining balance of previously disbursed term loans.

c. Utilization of Loan

Furthermore, the study found out that proper utilizations of disbursed term loans only for the

purpose they originally approved by credit management of lending bank can lead to successfully
 61

settled term loans repayment performance. This implies, proper utilization of granted term loan

without diverting to any purpose other than that it has originally been disbursed can be resulted

into fully repaid term loans repayment performance.

d. Size of Loan

The study also showed that that granting sufficient amount of term loans considering the actual

repayment capacity of a borrower can be resulted in successfully settled term loans repayment

performance.

e. Length of Loan Contract

Once again the study revealed that extending term loans considering adequate repayment period

that would match with the cash flow of borrowers can lead to successfully settled term loans

repayment performance.

5.2 CONCLUSIONS

The main objective of this study was to access factors that can lead to fully repaid term loans

repayment performance – considering the case of Oromia International Bank Share Company.

After developing the structured questionnaires needed for this study, first-hand data was

collected from purposively selected sample of 196 survey respondents of OIB employees who

directly engaged in a day-to-day loan related banking operations: loan processing, credit

management, credit decisions and credit monitoring and follow-ups activities.

The five point Likert Scale technique was adopted so as to quantitatively measure attitudinal

responses of survey participants with respect factors of the study. The process of data analysis

was then conducted by employing some basic descriptive statistics including frequency,
 62

percentage, the mean and standard deviation – which in fact simplified with the help of the

statistical package known as the SPSS.

The study found that the following were borrower- and loan-related factors of the study that have

been rated (by survey respondents) considering their relative importance towards causing settled

term loans repayment performances – the case of OIB. The Mean and respective standard

deviation were adopted in an attempt to compare and judge the importance level of those factors

of the study (in descending order) towards leading to settled term loans performance of OIB.

In this regard, the study revealed that business experience 4.34(.745), utilization of loan

4.11(.991), collateral strength 4.02(1.338), business type 3.99(.953), screening 3.99(1.1), credit

history 3.95(1.184), demand for other loan 3.74(.904), loan size 3.73(.968), length of loan

contract 3.58(.933) and education level 2.68(1.165) were borrower- and loan- related factors that

were respectively rated in terms of the level of their relative importance towards leading to

successfully settled or collected term loans performances of OIB.

Based on the descriptive results discussed just above, therefore, the study concluded that

borrowers’ business experience rated highly as very important factor that frequently resulted in

causing settled term loans repayment performance of OIB followed respectively by other factors

of the study such as utilization of loan, collateral strength, business type, screening, credit

history, demand for other loan, loan size and length of loan contract; whereas borrowers’

education level rated relatively as the least important factors in causing successfully settled term

loans performances of the bank under study.

 63

5.3 RECOMMENDATIONS

i. Based on the findings and conclusions, the study recommends that each OIB staff

including loan officer, credit analysts, customer relation manager, branch manager and

each credit committee of same bank such as branch credit committee, district credit

committee, department credit committee and management credit committee that operate

with loan administrations should be informed about the relative importance of factors of

the study towards causing successfully settled term loans repayment performances of

the bank under consideration.

ii. The study further recommends that, after properly screening out risky loan applications,

management credit committee of the bank under study should extend sufficient loans

amount along with reasonably enough repayment period by giving priority to such

borrowers of the bank that could demonstrate adequate business experiences in running

profitable or less risky business types; properly utilize the loan for purpose granted only

without diverting to other risky purpose; possess valuable assets that could be offered as

strong collaterals relative to the size of requested loans and also got good truck of credit

record in the past with any lending commercial banks of the country.

5.4 FUTURE RESEARCH RECOMMENDATIONS

Considering time and resource constraints, this study attempted to examine factors that can lead

to successfully settled term loans repayment performance of OIB, by using data collected from

employees of same bank who work with loan related administrations. Thus, when possible, the

study recommends for the need of conducting further studies on the same or similar topic by

collecting the required data directly from borrowers themselves.

 64

REFERENCE

AAU (2017).Module for Applied Econometrics for Finance: Population vs Sample. College of

Business and Economics.Department of Accounting and Finance.Addis Ababa

University.

Abreham, G. (2017). Assessment of factors affecting loan repayment performance of borrowers.

An empirical study on selected Microfinance Institutions in Oromia Region.

Alexander et al (2018). Introductory Business Statistics.Rice University, 6100 Main Street MS-

375, Houston, Texas 77005.

Andrea, F. (2015).What's a Good Survey Response Rate? Retrieved from:

https://www.surveygizmo.com/resources/blog/survey-response-rates/

Amen-Rabi, I. (2011). Factors influencing loan repayment behaviour in Tanzanian community

Banks. Case of Dar es Salaam Community Bank.

Anil, k.,Raghuram, R. and Jeremy, S. (2002). Banks as Liquidity Providers: An Explanation for

the Coexistence of Lending and Deposit-Taking. The Journal of Finance. Vol. LVII. No.1

Araga, A. S. (n.d). Bank Lending and Loan Administration: Principles of Bank Lending Policies.

National Open University of Nigeria, School of Management Sciences.

Asres, A. &Yitbarek,T. (2016). Business Research Methods: Research Design. Module for

MBA Distance Program.Addis Ababa University, College of Business & Economics,

Department of Management.

Ayele, S. (2016).Determinants of Successful Loan Repayment Performance in Project Financing

in the case of Development Bank of Ethiopia.School of Graduate Studies.School of

Business.St. Mery’s University.

Bill, F. (2017). Loans: Why Loans Are Important in a Bank. Retrieved

fromhttps://bizfluent.com/about-5494925-loans-important-bank.html
 65

Brooks, C., 2008. Introductory Econometrics for Finance.2nd ed. New York: Cambridge

University Press.

Burton, M. &Lombra, R. (2003).The Financial System &The Economy: Spending, Saving,

Borrowing, and Lending.Principle of Money & Banking.3rd Edition.

Calicut University (2011).Business Research Methods: Hypothesis.School of Distance

Education. Core Course, Study Material. Malappuram Kerala, India.

C. A. Wongnaa, D. Awunyo-Vitor, 2013).Factors Affecting Loan Repayment Performance

among Yam Farmers in the Sene District, Ghana.Agris on-line Papers in Economics and

Informatics.

Courtney, T. (20119). Descriptive Data Analysis:What is Skewness in Statistics? Retrieved from

https://www.thoughtco.com.

David M et al (2019).Introduction to Statistics.Online Edition.A general statistics

LibretextsTextmap.Rice University, University of Houston, Downtown

Campus.Retrieved from https://stats.libretexts.org/Bookshelves/Introductory_Statistics/.

DataStar, (n.d).How to Interpret Standard Deviation and Standard Error in Survey Research. 85

River Street, Waltham, MA 02453. Retrieved from www.surveystar.com.

Directive No.SBB/43/2008. Licensing and Supervision of Banking Business: Asset

Classification and Provisioning (4rth Replacement). National Bank of Ethiopia, Addis

Ababa.

Douglas W. Diamond & Philip H. Dybvig.(1986). Banking Theory, Deposit Insurance, and Bank

Regulation.The University of Chicago Press.The Journal of Business, Vol. 59, No.1.

Durbin, J. (1950). Testing for Serial Correlation in Least Squares Regressions I. Test under

classical assumptions.
 66

Eddie, M. (2009).Business Finance, Theory and Practice: Term Loans. Pearson Education

Limited, Eighth edition, England.

Elias, J.O. (2015). Factors Determining Loan Repayment in Microfinance Institutions: The Case

of Dar Es Salaam Clients, Open University of Tanzania.

Emre, E. (2001). Theories of Bank Loan Commitments.Economic Review.The Federal Reserve

Bank of Cleveland.Retrieved from http://clevelandfed.org/research/review.

Eze, C.C., & Ibekwe, U.C. (2007). “Determinants of loan repayment under the indigenous

financial system in Southeast, Nigeria”. The Social Sciences Journal, 2(2), 116-120.

Florence, A., & Daniel, N. W. (2014).Factors Influencing Loan Repayment in Micro-Finance

Institutions in Kenya.IOSRJournal of Business and Management (IOSR-JBM).Volume

16.

Frederic, S. M. (2011). The Economics of Money, Banking and Financial Markets: Managing

Credit Risk (PP.330 -334). Library and Archives Canada Cataloguing in Publication,

Pearson Canada Inc., Toronto, Ontario.

Godio, R.K. (2012). Determinants of Loan Repayment in Commercial Banks: A case of CRDB

Bank Plc (Moshi Branch. Independent Researcher.

Harry, B. & Deborah, B. (2012).Analyzing Likert Data: Analyzing Likert Response Items. West

Virginia University. Morgantown, West Virginia.The Journal of Extension. Volume 50 //

Number 2.

Ibeleme, S. N.O, Godwin, C. O. &Odionye, J. C. (2013).Determinants of Loan Size and

Repayment Performance of Small Oil Producers in Nigeria: The case study of Abia State.
 67

IBM, SPSS Statistics (n.d). Help: Linear Regression. Linear Regression

Plots.http://abduro:49424/help/index.jsp?topic=/com.ibm.spss.statistics.help/idh_regr_plo.htm.

Ismail, S. (2012). Quantitative Techniques for Social Science Research: Why do we do sample

surveys?

Jeffrey, W. (2016).Introductory Econometrics - A Modern Approach:Steps in Empirical

Economic Analysis. Michigan State University, 6e.

Jhingan, M. L. (2008). Money, Banking, International Trade and Public Finance.7thEdition. Delhi:

Vrinda Publications (P) Ltd.

Kent State University Libraries. (2019). SPSS Tutorials: Descriptive Stats for Many Numeric

Variables (descriptive). Retrieved from https://libguides.library.kent.edu/SPSS/Descriptives

Kibrom, T. (2010).Determinants of Successful Loan Repayment Performance of Private

Borrowers in Development Bank of Ethiopia, North Region.Mekele

University.Department of Management.

Lucia, R. & Peters, J. (1998). Commercial Bank Management: Functionsof Commercial

Banking. Australian Institute of Banking and Finance Inc. 4th ed. Sydney.

Marcelina, M. (2017).Assessing the Impacts of Social-Economic Factors on Loan Repayment

Performance.A Case of CRDB and ACB Bank in Mwanza.

Mark, L. (1995). How to Measure Survey Reliability & Validity: Internal Consistency

Reliability.Sage Publications.

Mark, B. & Natalia, C. (2017). Key Terms: Sampling Error. Introductory Statistics

2ndEdition.College of Lake County Faculty.

 68

MBA Knowledge. Function of Commercial Banks: Credit Creation o Commercial Banks.

Retrieved from https://www.mbaknol.com/business-finance/functions of commercial-

banks/.

Mathers, N. Fox, N. &Hunn, A.(2009).Surveys and Questionnaires:Methods of collecting Survey

Data. The NIHR Research Design Service for the East Midlands, UK.

Meredith, W. (2015).5 Reasons Your Business Needs a Loan. Editor-in-Chief at Fundera.An

Online Marketplace for Small Business Loans.

Metkel, G. (2017). Assessment of Microfinance Loan Repayment Problems in the Informal

Sector: The Case of DECSI MekelleDebub Sub Branch.

Michael, S. (2018). What do Lenders Consider?: Ability to Repay & the Willingness to Repay.

Retrieved from www.michaelsmalling.com/what-lenders-consider/

Million, S. (2012). Factors Affecting Loan Repayment Performance of Smallholder Farmers in

East Harghe, Ethiopia. Thesis submitted to University of Nairobi, Kenya.

Mohsin, H. (2016): A Manual for Selecting Sampling Techniques in Research: Sampling and its

Purpose. University of Karachi, Iqra University.

Mugenda, M. &Mugenda, G. (2003).Research Methods.Nairobi, Kenya: Laba Graphics Services

Ltd.

Nada, M. (n.d): Can Banks Provide Liquidity in a Financial Crisis?Federal Reserve Bank of

Kansa City.Retrieved from http://www.KansasCityFed.org.

Nancy, G. & Mohamed, S. (2014). Determinants of Loan Repayment in Small Scale Enterprises

in Developing Countries.Management Studies and Economic Systems (MSES).

 69

NBE (Directives No.SBB/52/2012).Asset Classification and Provisioning for Development

Finance Institutions.Licensing and Supervision of Banking Business.National Bank of

Ethiopia. Addis Ababa.

Norhaziah, N. &MohdNoor, M. (2012).Factors Affecting Repayment Performance in

Microfinance Programs in Malaysia, Procedia - Social and Behavioral Sciences 62

(2012) 806 – 811.

Nkem, J. et al (2016). Assessment of creditworthiness and repayment among bank of agriculture

loan beneficiaries in Cross River State, Nigeria. African Journal of Poultry Farming.

OIB, CPM. (2012). Oromia International Bank S.C. Credit Procedure Manual.CPM Volume II

and III. Addis Ababa. Ethiopia.

OIB, CPM. (2017). Credit Procedure Volume I: Credit Products. Oromia International Bank

S.C. CPM Volume I. First Revision.Finfinnee. Ethiopia.

OIB OMNI System (2018). Account Opened/Closed Report (from 2013 to 2018. Retrieved from

http://cbs.oib.com/omni/login.do.

Pekka, A. (2005). The New Theory of Commercial Banking and Bank Lending

Behavior.Department of Economics and Accounting.Working Paper 43.University of

Tampere, Finland.

Phides, S. M. (2013). An assessment of the causes of non-performing loans in Tanzania

commercial banks: a case of NMB bank PLC. Kenyatta road branch (Mwanza).

Portland State University (n.d).Reliability Quantitative Research: Reliability and Validity.

Retrieved from http://www.socialresearchmethods.net/tutorial/Colosi/lcolosi2.htm.

Pratima, S. (n.d).Role of Commercial Banks in Economic Development: Indian

Perspective.Tactful Management Research Journal. ISSN: 2319-794.

 70

Prem, M. (2010).Introductory Statistics: Sample Survey & Sampling Techniques. Eastern

Connecticut State University, John Wiley & Sons, Inc, 7thed.

Ranjit, K. (2011). Research Methodology: Establishing the Validity and Reliability of a Research

Instrumenta.a step-by-step guide for beginners. 3rdedition.

Roslan, A.H. & Karim, M.Z. (2009). Determinants of Microcredit Repayment in Malaysia:The

case of Agrobank. Journal of Humanity & Social Sciences. Vol. 4, No. 1:45 – 52

Sarang, N. (2018). Understanding Descriptive Statistics: What is Descriptive Statistics? Retrieved

from: https://towardsdatascience.com/understanding-descriptive-statistics-c9c2b0641291

Shaik Abdul Majeeb, P. &Tolosa, N. (2014).Performance of Loan Repayment Determinants in

Ethiopian Micro Finance.Eurasian Journal of Business and Economics.

Shelagh, H. (2005). Modern Banking: The Meaning of Banking. (PP. 25-26). Professor of

Banking and Finance.Cass Business School, City University, London.John Wiley & Sons

Ltd.

Stats.idre.ucla.edu (2019).Regression with SPSS – Chapter 2: Regression Diagnostics. Retrieved

from /https://Stats.idre.ucla.edu/spss/webbooks/reg/chapter2/spss-

webbooksregressionwith-spsschapter-2-regression-diagnostics/

Susan, D. & Barbara, I. (2017).Introductory Statistics: Basic Definitions.Published by Open Stax

College.Adapted by College of Lake County Faculty.

Susan, R., Nigel, S. & Ana, C. (2015).Management Research: Applying the Principles.

Tesfa, G. (2016). Determinants of Ethiopian Private Commercial Banks’ Asset Quality. College

of Business and Economics. Addis Ababa University.

UCLA (2019). Regression with STATA: Regression Diagnostics. Retrieved from

https://stats.idre.ucla.edu/stat/stata/webbooks
 71

UCLA (2019). Regression with SPSS: Regression Diagnostics. Retrieved from

https://stats.idre.ucla.edu/stat/spss/webbooks

Van, R. (2002). Portfolio Manager: Repayment Capacity of Borrowers. Agribusiness, Ithala

Bank. Personal Communication. Durban, South Africa.

William, C. (2018). Information Asymmetry: Adverse Selection and Moral Hazard. Retrieved

from https://thismatter.com/mone/banking/information-asymmetry.htm.

William C. & Richards (2007).Criteria for Successful Loan Repayment.Collage of Business,

state University of West Georgia.

Will, K. (2019). Investopedia: Understanding the Standard Error?Retrieved from:

https://www.investopedia.com.

WILL, K. (2019). Descriptive Statistics: Understanding Descriptive Statistics. Retrieved from:

https://www.investopedia.com/terms/d/descriptive_statistics.asp.

William, W. &Frances, A. (2012).Introduction to Business Research 3 Research

Methodology.Data Collection and Analysis,Results and Conclusions.Edinburgh Business

School.Heriot-Watt University. Edinburgh, EH14 4AS. United Kingdom.

 72

Appendices - 1: Survey Questionnaire

Addis Ababa University

College of Business and Economics
Department of Accounting and Finance
Questionnaire on Term Loans Repayment Performance – case of OIB

As part of my MBA thesis major in Finance, I am conducting survey to collect data that

required for the proposed study entitled Assessment on Factors Leading to Settled Term Loans

Performance – considering the case of OIB.

This Likert Scale survey is purely academic and any information provided will be treated

confidentially and used only for academic purpose which is broadly categorized into two main

parts: Part I and Part II. And your valuable participation is sought considering your overall

banking experience, in general, and/or your loan-related knowledge at OIB, in particular.

I am, thus, kindly asking you to take few moments and provide your thoughtful opinions on

how you think the relative importance of the given survey statements regarding the performance

of successfully settled term loans – considering the case of OIB.

General Instructions:

b) Please rate each survey question considering the extent of its relative importance;
c) Please make a tick mark “√” only once against your choices;
d) Please provide your honest and thoughtful responses.

Your participation is highly appreciated!

 73

Survey ID _____

This survey supposed to employ the Likert-Scale method with five point scales. Considering the degree
of their relative importance, therefore, please rate each of the following survey statements (from 1 to
20) by putting a tick mark(√) against any one of the corresponding point scales (from 1 to 5) of your
choice.

Factors causing Fully Repaid Term Loans Repayment Performance – case of Borrowers at OIB

Not Slightly Moderately Very

Important
Statement Important Important Important Important
(4=I)
(1=NI) (2=SI) (3=MI) (5=VI)

I. Borrower - related Factors

a Credit history of a borrower
with other lending commercial
banks including OIB.
b Borrower’s experience in
running the business he/she/it
actually engaged in.
c Borrower’s education level

d Type of business sector in

which a borrower is engaged
e Borrower’s collateral strength
to apply for another or additional
loan – after getting settled
existing loan outstanding
balance.
II. Loan - related Factors
a Screening bad credit
applications with credit risks
from the good ones based on
reliable information collected
 74

about prospective borrowers in

line with the minimum
eligibility criteria.
b Borrowers’ desire to apply for
another or additional loan after
fully repaying outstanding
balance of existing loan.
c Borrower’s loan utilization
solely for the purpose it
originally disbursed for.
d Sufficient amount of loan
disbursed relative to borrower’s
credit demand.
e Length of loan contract agreed
between the bank and the
borrower during which the
extended loan is expected to
fully repay back.

MANY THANKS
 75

Appendix - 2: Descriptive Statistics

Descriptive Statistics
Std.
N Minimum Maximum Sum Mean
Deviation
Business Experience 196 2 5 851 4.34 .745
Utilization of Loan 196 1 5 817 4.17 .815
Collateral Strength 196 1 5 787 4.02 1.338
Type of Business Sector 196 1 5 783 3.99 .953
Screening 196 1 5 782 3.99 1.100
Credit History 196 1 5 774 3.95 1.184
Demand for another Loan 196 1 5 734 3.74 .904
Size of Loan 196 1 5 731 3.73 .968
Length of Loan Contract 196 1 5 701 3.58 .933
Education Level 196 1 5 525 2.68 1.165
Valid N (list wise) 196

Source: Survey Output using SPSS