EFFECT OF CREDIT MANAGEMENT TECHNIQUES AND LENDING PRACTICES ON FINANCIAL PERFORMANCE: THE CASE OF COMMERCIAL BANKS OPERATING IN BAHIR DAR CITY

Abstract

The main objective of the study was to investigate the effect of credit management techniques and lending practices on financial performances of commercial banks operating in Bahir Dar City. To address the research objective, a total of 258 respondents who are working in areas of credit management and lending were purposively selected. This study used mixed research approach and explanatory research designs to establish relationships between credit management technique, lending practices and financial performance. The regression results indicated that credit policies, procedure and strategies, collateral, character, and capital has statistically significant and positive determinant of sound financial performance. Credit term has statistically significant and negative determinant of financial performance. Credit collection effort, credit information, capacity, and condition were not statistically significant determinant of financial performance of commercial banks operating in Bahir Dar City. This study suggested and recommended that, improving issues obtaining reliable credit information, formulating an appraisal process or procedures for loan granting, conducting frequent contacting or business visit, creating enough capital and improving managerial efficiency in credit areas had an important value in increasing financial performance of commercial banks operating in Bahir Dar City.