A RESEARCH PROPOSAL ON
ASSESSMENT OF CREDIT RISK MANAGEMENT PRACTICE IN COMMERCIAL BANK
OF ETHIOPIA: (THE CASE OF BALE ROBE DISTRICT)
By:
Birhanu Gizaw (PGAE/0005/11)
Advisor: Hussein Jarso (PhD)
Submitted to:
Madda Walabu University College of Business and Economics Department of
Accounting and Finance
July, 2021
Bale Robe, Ethiopia
Contents
INTRODUCTION...........................................................................................................................2
1.1. Background of the Study...................................................................................................2
1.2. Statement of the Problem..................................................................................................3
1.3. Research question.............................................................................................................5
1.4. Objectives of the Study.....................................................................................................5
1.4.1. General objective.......................................................................................................5
1.4.2. Specific objectives of the Study................................................................................6
1.5. Significance of the Study..................................................................................................6
1.6. Scope of the Study............................................................................................................6
1.7. Organization of the Paper.................................................................................................6
CHAPTER TWO.............................................................................................................................8
2. LITRATURE REVIEW...........................................................................................................8
2.1. Credit risk..........................................................................................................................8
2.1.1. Type of credit risk......................................................................................................9
2.2. Credit risk management..................................................................................................10
2.3. Tools of Credit Risk Management..................................................................................12
2.4. Empirical Studies............................................................................................................13
CHAPTER THREE.......................................................................................................................15
3. RESEARCH METHODOLOGY..........................................................................................15
3.1. Research Design..............................................................................................................15
3.2. Sampling Size and techniques.........................................................................................15
3.3. Target group....................................................................................................................16
3.4. Types of Data collected...................................................................................................16
3.5. Data analysis...................................................................................................................16
3.6. Ethical consideration.......................................................................................................17
CHAPTER FOUR.........................................................................................................................18
4. TIME SCHEDULE AND BUDGET OF THE STUDY........................................................18
4.1. Research Schedule..........................................................................................................18
4.2. Budget Plan.....................................................................................................................19
References......................................................................................................................................20
1
INTRODUCTION
1.1. Background of the Study
Banking industry is the largest and most dominant financial sectors which help the
development and growth of countries economic transformation. Bank is a financial institution
which collects deposit from depositors and lend to other business sectors as its main function.
For most banks, loans are the largest and most obvious source of credit risk Basel (1999). Kargi
(2011) study and find out that there is a significant relationship between bank performance and
credit risk management. Loans and advances and non-performing loans are major variables in
determining asset quality of a bank. These risk items are important in determining the
profitability of banks in Nigeria. Where a bank does not effectively manage its risk, its profit will
be unstable.
Credit risk is defined as the potential that a bank borrower or counterparty will fail to meet its
obligations in accordance with agreed terms. The goal of credit risk management is to maximize
a bank’s risk-adjusted rate of return by maintaining credit risk exposure within acceptable
parameters. Banks need to manage the credit risk inherent in the entire portfolio as well as the
risk in individual credits or transactions. Banks should also consider the relationships between
credit risk and other risks. The effective management of credit risk is a critical component of a
comprehensive approach to risk management and essential to the long-term success of any
banking organization. (Greuning & Bratanovic 2009).
Hinnies (2003) states that despite innovation in the financial service sector over the years, credit
risk is still the major single cause of bank failures, for the reason that more than 80% of a bank’s
balance sheet generally related to this aspect of risk management. The consultative paper issued
by Basel (1999) also pointed out that the major cause of serious banking problem continuous to
be directly due to the loose of credit standards for borrowers and counter parties, poor
portfolio risk management and so on.
Loan is typically the largest asset and the predominant source of revenue. As such it is one of the
greatest sources of risk to a bank safety and soundness. The very nature of the banking business
is so sensitive because more than 85% of their liability is deposits from depositors (Saunders and
2
Cornett, 2005). Banks use these deposits to generate credit for their borrowers, which in fact is a
revenue generating activity for most banks. This credit creation process exposes the banks to
high default risk which might lead to financial distress including bankruptcy.
The key principles in credit risk management are establishment of a clear structure, allocation of
responsibility and accountability, processes have to be prioritized and disciplined,
responsibilities should be clearly communicated and accountability assigned thereto. Organizing
and managing the lending function in a highly professional manner and doing so pro-actively can
minimize whatever the degree of risk assumed losses. Banks can tap increasingly sophisticated
measuring techniques in approaching risk management issues with the advancements of
technology (Yang, 2013).
The beginning of banking in Ethiopia, as in most other country of the world were non
institutional banking operation were based on the private initiative of merchant or others
possessing or in urgent need of money. Since 1963, Commercial Banks of Ethiopia have been
performing commercial banking activities in Ethiopia. At present the bank has more than 970
branches and more than 22,000 employees with capital of 303.6 billion assets. In general CBE is
the leading bank in Ethiopia and serve as the major source of finance to the national development
effect. The bank provides different types of credit facilities such as Overdraft, merchandise loan
facility, Pre-shipment Export Credit facility, Revolving Export Credit Facility, Special Truck
Loan Financing, Short term loan, Medium and long term loans, Agricultural Input Loan,
Agricultural Investment Loan, Coffee farming Term Loan Financing and Microfinance
Institution’s Loan. From these types of loans provided by the bank priorities are given to
manufacturing sector, agricultural sector and export. As indicated in the 2014/15 annual
performance the report, it has been possible to mobilize a total deposit of 48.8 billion birr that
makes the Bank’s deposit position 241.7 billion birr. During the 2014/15 budget year, the Bank
disbursed a total loan of 89.6 billion birr. Therefore, this research assesses credit risk
management practice of the bank and the policy environment and ways of alleviating credit risk
also assessed in the research.
3
1.2. Statement of the Problem
Banking industry is a major source of finance for any type of business it may be in the form of
loan. Loan is one of the mechanisms used by financial institutions as a major source of income.
Also the process of repayment default is also fraud for the institutions.
Non-performing loans or uncollectable loans or bad loans are reducing the profitability of the
bank. This NPL are highly ties huge amount of capital that can be used for productive purpose by
giving loans and advance to various economic sectors and profitable business and investments in
different sectors. At present from the total loans and advance disbursed amount
111,435,273,000.00 birr which is Birr 1,987,873,000.00 or 1.78% is under the category of NPL
in Commercial Bank of Ethiopia (CBE) as at June 2020. Even-if the NPL ratio is below the
required level of NBE it is increasing in the past five consecutive years from 293,370,000.00 birr
in year 2011 to 1,987,873,000.00 birr in year 2020 (Commercial Bank of Ethiopia, 2020). There
are a number of studies on credit risk management in Ethiopia:
Hagos (2010) in his study of credit management– A Case Study of Wegagen Bank Share
Company in Tigray Region attempt to indicate the importance of credit management in financial
institutions such as commercial banks, micro finances and others. Thus, the rationale behind
undertaking the study is to deeply investigate the causes of credit management problems and to
suggest the possible solutions that enable the bank to run its operation in a safest way as credit is
known to be the main focus of all banks.
Tibebu (2011) in his paper examine the impact level of credit risk management towards the
profitability of selected commercial banks in Ethiopia in general. He argues that credit risk
management has significant impact on profitability of banks of our country. He took seven
selected banks such as Commercial bank of Ethiopia, Nib International bank, Dashen bank,
Awash International Bank, Bank of Abyssinia, Wegagen Bank and United Bank.
Solomon (2013) assesses credit risk management practice of Nib International Bank S.C and find
out that risk which emanates from credit is due to high degree of credit concentration in few
sector and borrowers, the use of collateral as number one technique to alleviate credit risk and
absence of proper evaluation model. He goes on to state lesser value for MIS, absence of
4
advisory service, dependency of administration mechanism, override in appraisal process,
absence of proper follow up and no formal way of penalizing loan officers is the major cause of
credit risk in NIB international bank.
Tesfaye (2014) investigates factors influencing credit risk in the Ethiopian commercial banks.
The main purpose of the study is to follow a comprehensive approach towards identifying credit
risk influence factors.
Yalemzewd (2013) assess credit management practice of Bunna International Bank S.C and
analyzed the process of accessing credit, credit control process and credit collection strategy
against non-performing loan of the bank.
As mentioned above most of the researches are conducted on different private banks in which
large amount of their loans are dispersed to private business but this paper is conducted on CBE
a government owned bank in which large amount of its loans are dispersed to government
project and on three priority sectors(i.e. manufacturing, export and agriculture). This gap and the
above mentioned problem of NPL call research to assess the credit risk management practice of
Commercial Bank of Ethiopia.
The major issue of this paper is to assess and find out what tools and techniques are used in the
bank and to what extent their current performance are supported by proper credit risk
management policy, procedure and strategy and to what extent Commercial Bank of Ethiopia can
manage its credit risk.
1.3. Research question
The researcher tries to answer the following question:
What are the gap between credit risk management practice of the bank and the theory of
credit risk management?
What are credit risk management techniques and tools used by the bank?
How does the bank identify, measure, monitor, evaluate and control credit risk?
5
1.4. Objectives of the Study
1.4.1. General objective
The general objective of the study is to assess the credit risk management practice of commercial
bank of Ethiopia.
1.4.2. Specific objectives of the Study
To assess credit risk management practice of CBE with theoretical framework.
To identify which of the three priority sectors of credit facility is highly exposed to NPL.
To evaluate the implemented credit risk management process and techniques.
1.5. Significance of the Study
Since credit is the back bone of bank industry in generating income, the outcome of the study
will help policy maker, loan processing and credit appraisal department, credit administration
department and credit risk management department by forwarding relevant information from
outcome of the study in order to improve their credit risk management practice.
Moreover, the study also have importance for other Ethiopian banks policy makers by providing
empirical data that help in improving or formulating the policy environment for credit risk
management practice of the banks. Also the research will be input for further study in the area of
credit risk management practice.
1.6. Scope of the Study
The focus of the research is assessment of credit risk management practice of
Commercial Bank of Ethiopia and the researcher mainly focuses on credit administration, credit
appraisal, customer relationship managers department and related area at Bale Robe district
selected branches, risk management department and consumer loan at district level in order to
gather relevant information about the area of study.
Therefore, the study is limited to the credit activity and risk management area of Commercial
Bank of Ethiopia on selected 10 branches found in Bale Robe districts. Other operation of the
CBE is not the subject matter of this research.
6
1.7. Organization of the Paper
The study will organize in to five chapters. The first chapter deals with background of the study,
statements of the problem, objective of the study, the scope of study, significance of the study,
limitation and organization of the research.
Relevant literature related to the study will be reviewed in chapter two. Chapter three focuses
with the description of the study area, materials and methods of the study. In chapter four, the
results obtained from the descriptive statistics and econometric models will try to be presented
and discussed. Finally, chapter five presents the conclusion and recommendations and
implication for future research.
7
CHAPTER TWO
2. LITRATURE REVIEW
2.1. Credit risk
Beasens and Gestel (2009) defines credit risk as the risk that a borrower fails to pay and does not
act according to their obligation to service debt. They state that the causes for the failure to pay
could be incapability of the other party to pay or failure to pay on the due date. Besides they
mentioned that by its character credit risk is the most apparent risk of a bank. In addition to this
the writer characterize credit risk by ways of three aspect the first one is default risk is the
possibility that payment is not issued at least within three month this delay will happen due to
Counterparts with a weak financial situation, high debt burden, low and unstable income
have a higher default probability, sector information and management quality. The second
aspect is loss risk or loss given default (LGD) which is a fraction of exposure in the case of
failure to pay and exposure risk is ambiguity on the accurate amount at risk at the very instant of
a future default.
In the same way Singh (2013) states that another term for credit risk is default risk and defines it
as the bank’s risk of loss arising from a counterparty that does not make payments in accordance
with his/her promise. He also points out credit risk is the earliest and the main source of risk in
the banking sector.
Credit risk encompasses both the possibility that a borrower will default by failing to repay
principle and interest in timely manner, and the possibility that the credit quality of the obligor
will deteriorate, leading to an economic loss (Ong, 2006).
Credit risk occur when one of the counter parties to a transaction does not clear up in full either
when the fund are outstanding or on some later date and it may result in bankruptcy of
counterparty (C.Baker, 1998).
8
According Anuj A. (2011), credit risk is delay of one’s own obligation in accordance with stetted
contractual financial obligation within the deadline of payment by counter party. Credit risk is
the possibility that debtors or borrowers incapability of paying its obligation in a way that
predetermined contractual agreement made during credit approval process which adversely affect
the working environment of the lender.
Credit risk is defined as the probability that a bank borrower or counterparty will fail to meet its
obligations in accordance with contracted terms Basel (2000).
Credit risk arises whenever a lender is exposed to loss from borrower, counterparty, or an obligor
who fail to honor their debt obligation as they have agreed and contracted Colquitt (2007).
The Basel (2001), defines credit risk as a chance when borrowers fail to repay their loan partially
or fully due to different circumstances. It also state that the extent to which the bank exposed to
higher credit risk will lead to unexpected financial crises and lower credit risk will minimize the
probability of the crises because large amount of profit will be generated from this department of
the bank.
2.1.1. Type of credit risk
According to Brown and Moles (2014) there are two sub-types of credit risk country risk and
industry risk which affect multinational enterprises.
i. Country risk
Arise from having contact to individuals and institutions in countries that have legal systems,
business codes and standards that differ from those of the lender. There are four factors relevant
to this. The first is political risk, which arises when a country’s government is challenged
externally or from within national borders. Political risk is more problematic in long-term
lending agreements than for short-term transactions. The second is Economic risk, which arises
from depressed or declining economic stability in a country. The third factor is currency risk,
which always arises with cross-border lending.
Finally, the fourth factor is the enforcement risk from the legal system in the debtor country.
Because a creditor has to go through a foreign legal system, it has been known for debtors to use
9
their domestic legal process to stand or attempt to avoid paying, claiming that rules from their
home country apply.
ii. Industry risk
This applies particularly when the domestic or international economy is in recession and the poor
economic conditions particularly affect certain industries. Industry structure may have credit
consequences because of the supply chain within which most firms operate. It is a form of
concentration risk.
According to Baesens & Gestel (2009) Credit risk consists of pre-settlement and settlement risk:
iii. Pre- settlement risk
Pre-settlement risk is incapability of borrower to perform their obligation through the life of loan
repayment period. It can occur over long period of time from contractual period up to settlement.
And when the borrower residence countries forbid and block all foreign payment.
iv. Settlement risk
Settlement risk is the exchange of transaction through the involvement of third party this may
create suitable environment for settlement risk because the default of the third party during the
transaction will directly affect the other party (lender of bank). Longer time duration, payment in
different time zone and different currency is the most important factor to increase settlement risk.
2.2. Credit risk management
According to Singh (2013) credit risk management includes all management function such as
identification, measurement, monitoring and control of the credit risk exposure. The writer
further indicated that for long term achievement of banking sector effective credit risk
management practice is a vital issue in the current business environment and poor credit risk
management policy will create serious source of crisis in the banking industry.
According to Atakelt (2015) Credit risk management practice define as the process of analyzing
and renewing Credit risk management documents and apply constantly in actual Credit
granting process, Credit administration and monitoring and risk controlling process with suitable
10
Credit risk environment, understanding and identification of risk so as to minimize the
unfavorable effect of risk taking activities and the effectiveness of credit risk management
process is dependent on different variables such as proper application of best Risk management
documents, Staff quality, Credit culture, devoted top management bodies, sufficient training
program, proper organizational structure, ample level of internal Control and Performance
of intermediation function. This indicates that credit risk management includes different issues
such as developing and implementing suitable credit risk strategy, policy and procedure, accurate
identifications of risk, best credit granting process, credit administration, monitoring and
reporting process determining and controlling the frequency and methods of reviewing credit
policy and procedure and setting authority and responsibility clearly. Besides he mentioned that
by establishing suitable credit risk environment, acceptable level of credit limit, best credit
granting process, proper monitoring and controlling credit risk and optimizing risk return of a
bank credit risk management develop credit performance.
Cebenoyan & Strahan (2004) examine empirically how active management of credit risk using
loan deal affects capital structure, lending, profits, and risk of banks. They find that banks which
are Active in the loan sales market hold less capital and make more risky loans than other banks.
They conclude that advances in credit risk management improve credit accessibility rather than
decrease risk in the banking system.
The management of credit risk has become a key objective for all financial institutions across the
world. The goal of credit risk management is to maximize a bank’s risk-adjusted rate of return by
maintaining credit risk exposure within acceptable parameters Basel (1999).
According to Anuj A. (2011) through designing and implementing a credit risk framework,
performing a credit risk assessment, building credit risk Scoring models and credit risk reporting
control panel and forecasting loan loss we can construct effective credit risk management and
he also believe that most effective credit risk management focuses on processes, culture,
people and organization because we are working with them.
“Credit risk management includes both preventive and curative measure. Preventive measure
comprise risk assessment , risk measurement , and risk pricing , early warning system to pick
signal of future default in advance and undertake better credit portfolio diversification. The
11
curative measure aim at minimizing post sanction loan losses through steps such as
securitization, derivative trade, risk sharing and legal enforcement” (Jain, 2014, p3).
2.3. Tools of Credit Risk Management
According to Sunitha and J. K. Raju (2013), Thirupathi & M. Manojkumar (2013), Bhaskar
(2014) and Nayan & M. Kumaraswamy (2014) the tools through which credit risk management
is carried out are:
a) Exposure Ceilings: Prudential Limit is linked to Capital Funds - say 15% for
individual borrower entity, 40% for a group with additional 10% for infrastructure
projects undertaken by the group, Threshold limit is fixed at a level lower than Prudential
Exposure; Substantial Exposure, which is the sum total of the exposures beyond
threshold limit should not exceed 600% to 800% of the Capital Funds of the bank (i.e. six
to eight times).
b) Review/Renewal: Multi-tier Credit Approving Authority, constitution wise delegation of
powers, Higher delegated powers for better-rated customers; discriminatory time
schedule for review/renewal, Hurdle rates and Bench marks for fresh exposures and
periodicity for renewal based on risk rating, etc. are formulated.
c) Risk Rating Model: Set up comprehensive risk scoring system on a six to nine point
scale. Clearly define rating thresholds and review the ratings periodically preferably at
half yearly intervals. Rating migration is to be mapped to estimate the expected loss.
d) Risk based scientific pricing: Link loan pricing to expected loss. High-risk category
borrowers are to be priced high. Build historical data on default losses. Allocate capital to
absorb the unexpected loss.
e) Portfolio Management: The need for credit portfolio management emanates from the
necessity to optimize the benefits associated with diversification and to reduce the
potential adverse impact of concentration of exposures to a particular borrower, sector or
industry. Stipulate quantitative ceiling on aggregate exposure on specific rating
categories distribution of borrowers in various industry, business group and conduct rapid
portfolio reviews.
f) Loan Review Mechanism: This should be done independent of credit operations. It is
also referred as Credit Audit covering review of sanction process, compliance status, and
12
review of risk rating, pickup of warning signals and recommendation of corrective action
with the objective of improving credit quality. It should target all loans above certain cut-
off limit ensuring that at least 30% to 40% of the portfolio is subjected to LRM in a year
so as to ensure that all major credit risks embedded in the balance sheet have been
tracked.
2.4. Empirical Studies
Different researchers were conducted on this area of studies in different financial institutions.
Yang Wang, (2013) find out that the key principles in credit risk management are
establishment of a clear structure, allocation of responsibility and accountability, processes
have to be prioritized and disciplined, responsibilities should be clearly communicated and
accountability assigned on his research title Credit Risk Management in Rural Commercial
Banks in China.
Atkilti (2015) in his study find out that Credit risk, liquidity risk and operational risk are the
three important types of risks the banks mostly facing. The three widely used Risk identification
method were identified and ranked as Financial Statement Analysis firstly and followed by audit
and physical inspection and then internal communication. The study further confirmed that four
aspects of Basel’s Credit risk management principles explain a significant level of variation on
Credit risk management practice of Ethiopian commercial banks. Furthermore, Establishing an
appropriate Credit risk environment and Ensuring adequate Controls over credit risk were
found to be the most influential variables on level of Credit risk management practice. It is
finally observed insignificant difference between public and private commercial banks in all
aspect of Credit risk management principles and practice.
Girma (2011) point out on his study credit risk management and its impact on
performance in Ethiopian commercial banks that the default ratio of any bank in Ethiopia
depends on credit risk management quality of the institution.
Solomon (2013) studied credit risk management practice of Nib International Bank of Ethiopia
and in his assessment the researcher come across that factors lead to wrong decision making and
increase NPL level of the bank are concentration of credit in few sector and borrower, collateral
13
as number one technique of credit risk management, absence of credit risk model of credit
portfolio, lesser attention for MIS and advisory service to customers and absence of proper
follow up.
Tibebu (2011) examined that credit risk management and profitability of commercial banks in
Ethiopia. Find out that Both nonperforming loan ratio and capital adequacy ratio has a negative
impact on profitability‘s of commercial banks in Ethiopia. He also state that the impact level of
nonperforming loan ratio is negative which means, a single unit increase in nonperforming loan
ratio leads in (.594077) decrease of profitability of commercial banks of Ethiopia.
Tesfaye (2012) study factors influencing the level of credit risk in the Ethiopian commercial
banks. The study find out that quantity of risk and quality of risk management related
variables has got much influence on the credit risk level of banks. Nevertheless, risk direction
related measures, which are mostly external focus, have limited influence on credit risk. More
specifically the variation in the effect of stock and flow measures entails banks to further
enhance mostly two of Basel principles: operating under a sound credit granting process and
maintaining an appropriate credit, administration, measurement and monitoring process.
Akotey J.O. (2012) the study has examined the credit risk management of selected rural banks in
Ghana and has discovered that credit risk management plays a significant and dynamic role in
the business of rural banking. The researcher find out sampled ruler commercial banks have poor
credit risk management practices and hence the high levels of the non-performing loans in their
loans portfolios. Despite the high levels of the NPLs, their profit levels keep rising as an
indication of the transfer of the loan losses to other customers in the form of large interest
margins. Therefore the findings indicate a significant positive relationship between non-
performing loans and rural banks’ profitability informative that, there are higher loan losses but
banks still earn profit.
Bajpai et.al. (2015) The researcher find out that BPR Ltd has a credit management system
however it needs to be reviewed and adopted more to current Rwandan environment. The
researcher also indicated that there is a direct relationship between credit risk management and
profitability of commercial banks and recommended that BPR Ltd should review and improve its
14
credit policy and adopt it to Rwandan market and context and BPR Ltd should provide
continuous training and bring up to date its staffs.
CHAPTER THREE
3. RESEARCH METHODOLOGY
3.1. Research Design
In order to select relevant respondent stratified random sampling will be used. The
population of the study will segmented in to different branches. Respondent will be selected
from the selected branches randomly. The researcher used this sampling technique because it
helps to gather relevant information from the concerned department (i.e. credit and risk
management area of the bank and at both branches and district level).
3.2. Sampling Size and techniques
For this study only consumer loan (credit administrator and manager relationship and consumer
loan officer) department at district level which exist in Bale Robe and different respondents
from ten branches of grade two up to grade four branches under bale robe district will be selected
as a sample.
In order to select relevant respondent stratified random sampling will be used. The
population of the study is segmented in to different branches and district office. Respondent
would be selected from the segment randomly. The researcher used this sampling technique
because it helps to gather relevant information from the concerned department (i.e. credit and
risk management area of the bank both at branches and district level)
The total sample size selected will from 152 individual 110 employees will selected from district
office from different credit and risk management department and branches. The total sample size
selected and number of participants in the study will be 110.
n= N/1+Ne^2 =152/1+152*0.05^2
15
= 110
Description:
n= required sample size
t= confidence level at 95% (standard value of 1.96)
p=estimated employees at CBE head office and district level credit professionals.
m= margin of error at 5% (standard value of 0.05)
3.3. Target group
Everyone who works at a bank has different qualification, knowledge and experience even for
those who work at the same department. Therefore, in order to gather necessary, valid and
reliable information regarding credit risk management practice of CBE the sample selected will
be risk expertise, expert credit analyst, credit administration, risk management, credit appraisal,
loan recovery department and customer relationship managers and consumer loan in the
organization.
3.4. Types of Data collected
In this study the researcher will use both primary and secondary data. The primary data would be
collected through questioner and the secondary data, would collected from credit policy and
procedures and central bank directives to analyze the extent of implementation and CBE annual
report used to see the progress of NPL. In addition to this, Secondary data will be used to collect
the information which was not addressed by the questioner or to get more clarification on other
issues such as detailed policy, structure of credit risk management practice of Commercial Bank
of Ethiopia.
3.5. Data analysis
Based on the objectives of the study, appropriate tools and techniques of analysis such as
descriptive analysis and econometric models will be employed. All data collected in this research
was analyzed using descriptive statistic technique. Thus, percentage and frequency count and
table was used to analyze data collected by both primary and secondary data by using SPSS.
16
Multiple regression can establish that a set of independent variables explains a proportion
of the variance in a dependent variable at a significant level a significance test of R2 and can
establish the relative predictive importance of the independent variables difference of two R2 s to
determine if adding an in an independent variable to the model helps significantly. The estimates
(b coefficients and constant) can be used to construct a prediction equation and generate
predicted scores on a variable for further analysis (Gujarati, 2004).
3.6. Ethical consideration
In order to secure the consent of the research, the researcher will communicate with all
concerned bodies about the details and the aims of the study. And, the researcher will orient the
participants in data collection and encoding that they have to participate in the research willingly.
Moreover, the researcher will ensure to the respondents not to disclose their names, position and
personal information and will apologizes all for their participation.
17
CHAPTER FOUR
4. TIME SCHEDULE AND BUDGET OF THE STUDY
4.1. Research Schedule
No. Main Activities July August September
1 Preparation of research
proposal,
2 Questionnaire
preparation and
distribution
3 Data collection,
4 Data entry
5 Data analysis and
interpretation
6 Preparation of findings
and summary,
conclusion and
recommendation,
7 Drafting and report
writing
8 Finalizing the report
and submission of first
draft thesis
9 Final thesis submission
and data (presentation)
18
4.2. Budget Plan
No Items Unit Quantity Unit cost in ETB Total cost ETB
Stationary
1.1 Photo copy paper Pack 3 250.00 750.00
1.2 Line paper Pack 2 150.00 300.00
1.3 Square paper Pack 2 150.00 300.00
1.4 Note Book Pack 1 300.00 300.00
Sub Total 1650.00
Equipment
2.1 Pen Packet 1 250.00 250.00
2.2 Fluid Number 2 50.00 100.00
2.3 Stapler Number 2 75.00 150.00
2.4 Flash memory (8.GB) Number 2 200.00 400.00
2.5 Digital Camera Number 1 5,600 5,600.00
Sub Total 6,500.00
Print, Bind and Copy
3.1 Secretary typing Pages 95 1.00 95.00
3.2 Proposal printing Paper Pages 40 2.00 80.00
3.3 Proposal copy Pages 40 1.00 40.00
3.4 Proposal binding Number 4 10.00 40.00
3.5 Thesis printing Page 80*4 2.00 640.00
3.6 Thesis binding Number 5 10.00 50.00
3.7 Printing questionnaire Page 10 1.00 10.00
3.8 Photo copy Page 250x10 1.00 2500.00
Sub Total 3455.00
Miscellaneous
4.1 Transportation cost Trip 5x20 16.00 1600.00
4.2 Mobile card Number 10 50.00 500.00
Total cost 13,705.00
5 Contingency 10% 1,370.00
19
Overall cost (Summary) 15,075.00
References
Abdou, H. & Pointon, J. (2011). Credit scoring, statistical techniques and evaluation criteria: a
review of the literature, Intelligent Systems in Accounting, Finance & Management, 18 (2-3), pp.
59-88.
Anuj A. (2011). Credit Risk Management: Trends and Opportunities, Capgemini, Online
available At: www.capgemini.com/risk
Asia S. & Zaidi F.B. (2012). Design and Development of Credit Scoring Model for the
Commercial banks of Pakistan: Forecasting Creditworthiness of Individual Borrowers,
international Journal of Business and Social Science Vol. 3 No. 17. Available
onlinewww.ijbssnet.com
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