Professional Documents
Culture Documents
PREPARED BY:-
NURU TSEGAW …………..384/02
AND
ALEME SAMUAL.………..0093/01
SUBMETED TO INSTRUCTOR: TAMIRATE
SUBMETED DATE: JULY 03 /2012
Acknowledgment
First and Most I would like to praise almighty lord for his forgiveness and charity he has given to
my life.
Next I would like to thank my advisor Ato Tamirat for the invaluable advice and unreserved
comment from the inception to the completion of this paper. With out his dedication and
experience, this paper would not be possible.
Moreover I extend my special thanks to my family and friends (i.e. Seble and Aberash) for their
moral support for the successful completion of this paper.
Lastly, my appreciation goes to …..My colleagues …my friends ……and all staff of Wegagen
Bank for their cooperation and unquantifiable support. Thank you all.
Table of Content
Content Page
CHAPTER ONE
1.1 INTRODUCTION…………………………………………………………………….1
1.2. BACKGROUND OF THE ORGANIZATION……………………………………….1
1.2.1 EVALUTION OF BANKING
INSTITUTIONS……………………………………..1
1.1 Background of the study……………………………………………………………2
1.2 Statement of the problem…………………………………………………………...3
1.3 objective of the study………………………………………………………………..3
1.3.1 General objective………………………………………………………………..3
1.3.3 Specific objectives………………………………………………………………...4
1.4 Research Methodology and Duta collection…………………………………………4
1.4.1 Data type and source………………………………………………………...4
1.4.2 Survey study Design…………………………………………………………4
1.4.3 Data collection……………………………………………………………….5
1.4.4 Data presentation and analysis………………………………………………5
1.5 Significance of the study………………………………………………………...5
1.6 Scope of the study……………………………………………………………….5
CHAPTER TWO
2. Literature Review……………………………………………………………………………...6
2.1 lone advancing procedures………………………………………………………………6
2.1.1 Definitions and concepts of loan……………………………………………………….6
2.1.2 The business of banking……………………………………………………………...6
2.2 Profitability and Liquidity…………………………………………………………………….7
2.2. Lending procedure……………………………………………………………………...8
2.2.1 The principle of lending……………………………………………………………….8
2.2.3 Credit Term……………………………………………………………………………9
2.2.4 Control of credit………………………………………………………………………10
2.3 Interest Rate…………………………………………………………………………….10
2.3.1 Definition of interest rate…………………………………………………………..10
2.3.2 The Theory And Structure of Interest Rate………………………………………11
2.3.3 Security for the advantage…………………………………………………………13
2.3.4 Source of Repayment……………………………………………………………….13
2.4 Loan advancing laws and regulation In Ethiopia………………………………………...14
CHAPTER THERE
3. Data Presentation, Analysis and Discussion…………………………………………………..15
3.1 Introduction………………………………………………………………………..15
3.1.2 Loan Advancing Procedures…………………………………………………….15
3.1.3 Letter of Application……………………………………………………………...16
3.1.4 Opening of Account…………………………………………………………...16
3.1.5 Submission of Necessary Documents………………………………………….17
3.1.6 Preliminary Interview………………………………………………………….18
3.1.7 Credit Information……………………………………………………………..18
3.1.8 The Business Visit……………………………………………………………..19
3.1.9 Property Estimations…………………………………………………………...19
3.2.1 Source of Repayment………………………………………………………………20
3.2.2 Loan Approval………………………………………………………………21
3.2.3 Loan Contract………………………………………………………………..21
3.2.4 Security Contracts……………………………………………………………22
3.2.5 Insurance converge for the collateral………………………………………...22
3.2.6 Loan disbursement……………………………………………………………23
3.2.7 Interest calculation…………………………………………………………...24
3.2.8 Follow up and Collection Procedure…………………………………………..25
3.3 Primary Data Analysis and Discussion………………………………………………………25
3.3.1 Background of the Respondents………………………………………………..26
3.3.2 Clients opinion on time elapsed to obtain loan………………………………...27
3.3.2 Customers satisfaction………………………………………………………….27
3.3.3 Other comments………………………………………………………………...28
3.3.4 Data presentation and analysis that obtained from
The bank’s employees………………………………………………………29
CHAPTER FOUR
4. CONCLUSION AND RECOMANDATION………………………………………………..31
4.1 CONCLUSION……………………………………………………………………..31
4.2 Recommendations…………………………………………………………………..32
Bibliography
CHAPTER ONE
1.2 INTRODUCTION
1.2. BACKGROUND OF THE ORGANIZATION
1.2.1 EVALUTION OF BANKING INSTITUTIONS
It may be said that banking in its mot simple form is also as authentic history. As early as 2000
B.C Babylonians had developed a system of banks. In ancient Greece and Rome the practice of
granting credit was widely prevalent.
“Traces of credit by compensation and by transfer orders are found in ASSYRIA,
PHONENICIAN AND EGYPT before the system attained full development in Greece and
Rome. In Rome, the bankers were called Argentarii mensarii or callybistoe. The Bank was called
Tabernoe Argentario. Some of the banks carried business on their own account and others were
appointed by the government to receive the taxes.
During the early period, also the banking business was mostly done by private individuals, many
countries established public banks either for the purpose of facilitating commerce or to serve
the government. The banks of Venice, established in 1157. Is supposed to be the most ancient
bank.
As we know banking industry is one of the major sectors they play a great role in our economy
to day this key sector has been subjected to considerable restructuring to recedes. Even though it
has been stayed long banking in Ethiopia was not widely spread and developed. As a result untie
the down full the derg-regime its role was in significant.
As a result of these back grand and reforms, Wegagen Bank has established and become a good
competitor in the 1997 as private commercial bank by seven corporate shareholders with
subscribed capital of 30,000,000. The bank’s board of directors has decided to raise its paid up
capital to birr 180,000,000 and subscribed capital to birr 140,000,000. Wegagen bank is a very
competitive bank and delivers its quality services through its 33 bank ones out of which 13 are
located in Addis Ababa. 3 are sub branches.
The remaining 17 are operating at the regional administrative town of the country. Wegagen
bank in its function as a financial institution has drawn numerous objectives and the bank
comates itself to operate on a clearly defined statements mission, policy and procedures. This
policy is formulated on matters of describing the domestic banking activates and offer full
fledged international banking serves.
The main objective of the banks were the following,
1. To increase the level of capital in order to rise the lending limit of the bank and obtain a high in
come.
2. To give deferent kinds of banking services and loans for specific propose
3. To increase market share.
4. To encourage people to deposit money at the bank by understanding its use
5. To promote a habit of depositing money at the bank.
Wegagen Bank Share Company was the following duties and responsibilities,
- Opening of saving account and which are payable on request and time specific
- Providing different kind of loans.
- Transfer of money through telegram, mail transfer foreign money transfer.
- Opening of current account.
CHAPTER TWO
2. Literature Review
2.1 lone advancing procedures
2.1.1 Definitions and concepts of loan
Loan is the sale of goods, services and money claims in the present in exchange for a promise to
pay in the future. That means the debtor and the creditor agrees to settle their transactions.
In respect of bank’s meaning: credit means lending or granting money to those who are in need
of it (investors) who fulfill the bank’s requirements. It is a liability for the individual or
corporation received it but an investment comparable to bond, stock or other asset. For each
borrower a loan is adept, an obligation to repay the borrower money plus interest.(Garry
smith(1995))
We live in a world of credit. Every day in every way we become more and more involved in
various aspects of this credit world. Credit contributes to the development of the country and to
high standard of living. The major participants in the credit world are banks. This is because
most credits directly or indirectly originated from financial institutions, and credit granting is
one of the major activates of banks. It is through this credit granting activates that they made up
large portion of their earnings.
Loan officers should be able to comprehend the total situation and determine whether,
- applicant seems honest
- applicants proposal seems reasonable
- the information give by the applicant makes sense
- Applicants can accomplish the purpose of the loan.
- Purpose of the loan of the loan is legitimate and productive
- Applicants with having with the capacity to repay the loan according to schedule under normal
circumstance and
- There is margin of safety, if things just do not go right.
Bank staff should perform an additional duty of consulting these applicants where ever required,
with a view to converting seemingly imprecise and in attractive proposals in to reasonably bank
able proportions.
Controlling offices of bank’s should advise their branches detailed reasons for rejection of loan
proposals wherever this is not already being done this will enable branch staff to understand the
core lending policy and in turn do counseling to applicants in appropriate cases.
It would be desirable to advise loan applicants, in each case, the reason for rejection of there
applications but this may not be possible always. Banks would be justified in refusing to make
known the reason for rejection. But, wherever possible, customers should be advised of the
reason backed by counseling in appropriate manner.
- (Gray Smithe, 1991)
CHAPTER THERE
3. Data Presentation, Analysis and Discussion
3.1 Introduction
The objective of Wegagen bank S.C is to mobilize resource and organize them to viable
economic activities such as that risk are maintained at an acceptable low level .To carry out the
objective it provides various type of loan and advance as well as overdrafts.
Loan compost ion
The compositions of loan provided by the branch are as follows
- Overdrafts
- Time loans
- Personal loans
- letter of guarantee
- Letter of credit
In order to make such an activity the bank accepts deposits from its customers at an interest rate
less than the bank charges for its borrowers. This is because of the bank primarily engaged to
make profit and it incurs various type of expenses to make such and activity. Thus the interest
rate charged to the borrower should cover the expenses incurred and adds the borrower should
cover the expenses incurred and adds the benefit margin of the bank.
Other means
Of information may be past records of settled loans to confirm his agreement habit. As an
additional source NBE central data will also provide inform if there is belief that the customer
was bee doing his other credit or deposit with other banks. The NBE specifies the applicant’s
credit relationship with other borrowers past and present performance on credit activity. After
this the next step is to review the borrower’s business activities.
When costumers are non- performing in making heir repayments there is an additional interest
rate added to the minimum rate specifically 3.00% a loans categorized as anon- performing loan
when repayment delays for three- months or more. The interest is calculated as follows,
Monthly interest + principle * (interest rate + 3%) * 30(31) days
365 days
The penalty rate was applied in accordance to the contract made between the bank and the
debtor.
Monthly interest rate is capitalized and each loan account of a customer unless other wises the
loan accounts are non- performing. It a loans nonperforming, the interest is kept underrate adduct
(single entry)
Grade 11-12 0 - 0 -
3 Length of time as
borrower of Wegagen
bank 8 44.4% 3 43%
Below 2 year 10 55.6% 4 57%
2-5 years 0 0
Above 5 year
Accounting to the questionnaires conducted in the above table item number one demonstrates,
among 25 prominent responded customers of the bank 18(72% ) are males while the numbers of
female are 7(28%). From the above quantitative data, it is possible to understand that majority of
the branch credit customers are males.
Item two in the above e table is related to the educational back ground of the respondents. It
shows 5(28%) are less than Grade 4. 8(44%) are grade 4-8, 5(28%) are diploma and above.
While the female respondents are 3(42.86%) are grade 4-8, 2(28.57) are grade 9-10,2(28.57%are
Diploma and above item 3 in the above table respondents the length of time that customers stay s
a borrower of the branch. The analysis shows for male respondents. 8(44.4%) are below 2 and
10(55.6%) are between 2-5 years and 4(57%) are between 2-5 years.
Foe the above table 2 similar interpretation is applied as the previous table-1.
2 Age
25-30 2 66.7 3 60%
31-40 1 % 2 40%
Above 40 - 33.3 -
%
-
3 Education
Diploma 1 33.3 1 20%
1st Degree 2 % 4 80%
Above 1st degree - 66.7 -
%
-
4 Work experience in the organization
Below 1 year 1 33.3 1 20%
1-3 year 2 % 4 80%
Above 3year - 66.7 - -
%
-
According to the above table analysis result 62.5% of the respondents are females and the
remaining are males. And similarly the age distribution of the respondent male 66.7% lie 25-30
and the main 33.3% lie 31-40. In case of female
60% lie,25-30, and 40% lie 31-40. The other item 3 & 4 are also analyst similarly.
CHAPTER FOUR
4. CONCLUSION AND RECOMANDATION
4.1 CONCLUSION
Generally, this chapter gives a conclusion in relationship with the loan advancing procedure of
Wegagen bank S.C Hawassa branch. To this end, credit related issues are discussed and relevant
data are analyzed.
The researcher concludes that loan is beneficial both to the bank as well as to the borrower,
banks have to give a peculiar focus on it.
The current loan advanci9ng procedure of Wegagen bank Hawassa branch are too long and
complex, thus it does not encourage customers to make loan rather it is causing customer to
leave the bank and going to other banks
- The main participants of the branch in loan customers are domestic trade and service. The other
sectors comprise and insignificant portion of the loan
- Most of the loan clients of the Wegagen bank S.C are elementary school level so they lack to
understand the banking system
- To grant a loan, applicants for loan to present a written application, trade license of me corundum
of association and registration certificate if the applicant is a cooperative or association. In
addition, interview the applicants various questions to get high light about the borrower.
- According to the respondents the customers are living with the branch as a borrower for more
than five years
- Practically the concerned bank staffs used to visit the business according to the manual.
- The researcher replied that the time taken for granting a loan is very lengthy.
- In my understanding the reason for length is not only the procedure, but also the borrower, some
of the borrowers did not provide the appropriate documents at a right time
- Most of the clients are neither satisfied nor dissatisfied with the loan processing procedure, but
they exist till now because they are satisfied with the staff members of the loan office in handing
them.
- Therefore, the bank has to give special attention for the alleviation of encountered problems in
lending.
4.2 Recommendations
- Based on the findings of the available data and personal observation, the following
recommendations are forwarded with the belief that is will be helpful for the betterment of the
bank performance in loan advancing procedure
- On the basis of the assessment, Wegagen bank S.C Hawassa branch should take the following
measures to improve its credit activity and to maintain its customer from feeing to other banks.
- The bank should decide on lending of money to customers as much as possible with a maximum
of ten (10) days after receiving and application and necessary documents.
- Wegagen bank S.C should review its loan advancing procedures and made further investigation
why borrowers are following to other banks
- The bank should communicate openly with the customers and give suggestion with respect to the
banking procedures and practice, so they can able to help in facilitating the procedure by giving
the necessary information band documents on time
- The bank should give training to loan officers and managers on how to handing customers.
QUESTIONNAIRE- I
THIS QUESTIONNAIRE PREPARED FOR CLIENTS/ CUSTOMERS OF
WEGAGEN BANK S.C
HAWASSA BRANCH.
The questionnaires will try to identity some problems that will be improved for loan advancing
procedure of Wegagen bank Share Company. So that, your response kept very confidential and
you don’t required to mention you name
And finally thank you in advance for your cooperation
1. Sex: A. male B. female
2. Educational back ground,
A. Less than grade 4
B. Grade 4-8
C. GRADE 9-10
D. GRADE 11-12
E. TVT
F. Diploma & above
3. How long did you stay as a borrower in Wegagen bank Hawassa branch
a. Below 2 year
b. 2-5 year
c. Above 5 years
4. How long did you take to permit the loan your request?
A. below 5 days
B. 5-10 days
C. 15-30days
D. Above 30 day
5. Did you get loan service from other bank before?
a. Yes
b. no
6. If your answer for question no5 is yes how did you evaluate the advancing procedure as
compared to other banks?
a. Takes long period
b. Takes short period
c. Takes similar
d. takes medium period
7. Are you satisfied with the existing loan advancing procedure and practice?
a. Yes
b. No
c. Different
8. Did you ever intended to shift from Wegagen bank to other bank?
a. Yes
b. No
c. different
9. other cements that is important for the long run success of the bank
QUESTIONNAIRE - II
- The purpose of this question is to collect primary data on the loan practice & procedure of
Wegagen bank S.C Hawassa branch
- This question is answered by only the employees of loan sector Wegagen bank S.C Hawassa
branch
1. Sex:
male Female
2. Age: 25-30 30-40
3. Education :Diploma 1st Degree
4. Working experience in the organization (WBS.C)
Below 1 year
13- years
Above 3years
5. Do you have an experience of oldgardin the loan practice and procedure industry
Yes
You
6. Do you believe that the loan service that is given to the customer is an important source of
revenue for the bank
Yes
No
7. How loan is disbursed to the customer
- By applying individual customer with
- By applying cooperative of customers
- By applying both of the above
8. What are type of loan that the bank provide to their customer
- Providing long term loan
- Providing short term loan
- Providing both of the above
9. Do you think that there a problem that face the customer during the lending procedures
Yes
No
10. If your answer an question no. g is “yes “what are the problems that face the customers
- Failure to provide sutticient collateral
- Failure to fuller legal requirement
- Failure to the repayment of the loan the combination of the above
11. Another option on loan advising practice & procedure of your bank---------------
BIBLOGRAPHY
Gray Smith, (1991), Money Banking and finance intimidation Lxion lexingtion, Health
and co. Washinhton D.C
Palfreman D., Ford F, (1998), The Business of Banking: in elements of Banking, 2nd edition,
pitman, Great Britain, 10- 20
Raymon P. Neveu , (1985), Fundamentals of Managerial Finance, 2nd edition South main
Richard, A . Realey and Stewart, C. Myers, (1996), Principle of corporate finance, 5th edition.
Soldofsky and Olive, (1974) financial management, clininat Ohio.
Mishkin, Frederic S., (1989), the economics of Money banking and financial markets, 2nd
edition, Glenview Scott, Foresman
Wegagen Bank S.C. (2012) Domestic Manual, International Banking procedure, and polices and
procedures.
Asseffa Moges (1998) Money, Banking & insurance In Ethiopia, Birhan & Selam, Addis Ababa.
Suekuar; 1987 banking theory and practice in India, 8th edition