Browsing by Author "REDIAT DEJENE"

Filter results by typing the first few letters
Now showing 1 - 1 of 1
  • No Thumbnail Available
    Item
    COMPETING RISK MODELING OF LOAN DEFAULT IN COMMERCIAL BANK OF ETHIOPIA, HEAD OFFICE, ADDIS ABABA
    (HAWASSA UNIVERSITY, 2024-06) REDIAT DEJENE
    Background: It is equally true that bank loans, as they are profitable, equally risky. The risk of borrowers defaulting on their obligations poses a significant challenge for banks. Traditional credit scoring systems aim to estimate the probability that an applicant will default. However, for the financial institution, it is important to consider not only if but also when the creditor defaults. The major aim of this study was to investigate factors that affect the probability of default in the presence of early repayment, the case of CBE, Head office. Method: To reach the aim, using a retrospective study design, 1077 customers who took loans from 01 January 2015 to 30 December 2023 were taken from the Data Warehouse and Business Intelligence department at CBE, head office and the data set comprised the bank-specific, customer-specific, and loan-specific variables. The fine-gray model was applied to identify factors affecting two mutually exclusive events, default and early repayment. Result: From the total of 1077 borrowers, 893 (82.9%) defaulted and 184 (17.1%) were repaid early the corresponding median time was 12.2 and 81.3 months respectively. The result of the Fine-Gray model shows that loan size, monthly and quarterly repayment mode, previous loan experience, purpose of loan for manufacturing, and international trade were significantly associated with default risk, whereas, interest rate, quarterly repayment mode, and previous loan experience were significantly associated with early repayment. Conclusions and Recommendations: The result of the Fine-Gray model revealed that loan size, quarterly and monthly modes of repayment, significantly increase default risk, and previous loan experience significantly decreases default risk, while, interest rate and previous loan experience significantly increase early repayment risk. It is recommended that the bank should exercise caution when approving loans with large loan sizes, and borrowers without previous loan experience, especially if they opt for monthly or quarterly repayment modes.