DOI: 10.11648/j.advances.20260702.12 ISSN: 2994-7200

Assessment of Credit Management Practices and Loan Default Factors: Evidence from Cooperative Bank of Oromia Share Company, Ethiopia

Loko Nigatu
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Credit management is a fundamental banking function that influences loan portfolio quality, profitability, and financial sustainability. In Ethiopia, the expansion of banking services and lending activities has increased the importance of effective credit management practices. However, non-performing loans continue to pose significant challenges to the banking sector, largely due to weaknesses in credit appraisal, monitoring, and recovery mechanisms. This study aimed to assess the credit management practices of Cooperative Bank of Oromia S.c., Ethiopia, with particular emphasis on credit granting procedures, collection strategies, factors affecting credit performance, and the causes of borrower default. A descriptive research design was employed using both quantitative and qualitative approaches. Primary data were collected through structured questionnaires and interviews administered to employees involved in credit-related operations, while secondary data were obtained from reports, policy manuals, and relevant literature. Out of 150 questionnaires distributed, 98 valid responses were returned and analyzed using descriptive statistical tools, including frequencies, percentages, mean scores, and standard deviations. The findings revealed that the bank follows formal credit management procedures such as customer screening, financial analysis, collateral evaluation, and loan monitoring. Nevertheless, weaknesses were identified in monitoring and follow-up mechanisms. The results further indicated that macroeconomic factors, including inflation, high interest rates, unemployment, and economic instability, negatively affect credit performance. In addition, poor loan appraisal, delayed loan disbursement, unrealistic repayment schedules, inadequate supervision, and weak monitoring systems were found to be the major causes of borrower default. The study concludes that strengthening credit appraisal systems, enhancing loan monitoring and supervision, improving staff capacity, and adopting technology-based credit management tools are essential for reducing non-performing loans and improving the financial performance and sustainability of Cooperative Bank of Oromia S.c.

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