Loan and Advance Handling System:

The Case of selected Two Wegagen

Bank Branches in Addis Ababa

By
The Group
 Chapter one
INTRODUCTION

1.1 Background of the study

Wegagen bank is organized on a joint stock company system
primarily for the purpose of countries with a large network of
branches or of the unit banking type where as a bank
operations are confined to a single office or to a few branches
with in a strictly limited area .
Wegagen bank mobilizes the savings of the society.
The primary function of Wegagen bank is that of a broker and a
dealer in money by discharging this function efficiently and
effectively.
 The two essential functions of Wegagen bank may
be best summarized as borrowing and the lending of
money.
This paper deals activities of loans and advances in
Wegagen bank S.Co which may use as a reference
for their weakness in order to improve their
operations in this regard.
 Statement of the problem

The ultimate logic of this research is attempts to

providing loans and advances handling procedures
and their solutions.
It is obvious that loans and advance involve
certain problems and this paper tries to figure out the
problems on the handling procedures of loans and its
process.
 1.3 Research questions

This research has the following basic questions.

1. What is the status of the bank in operating loans and
advance?
2. How is the bank selection process of borrowing?
3. What are requirements needed for loans and advance
activities?
4. How is the follow up procedures of the bank?
 1.4 Objective of the study

1.4.1 General objective of the study

The general objective of the study is to assess the loans
and advance handling system in Wegagen bank s.co.
1.4.2 Specific objectives
 To assess the selection process of borrowers
 To assess the requirements for loans and advance activities
 To evaluate the follow up procedures
 To analyze the status of the bank in operation loans and
advances
 Chapter three
research methodology

Research methodology
The researcher used primary and secondary data
sources to gather information pertinent to the
specific research topic.
Primary Sources of Data
 Interviews conducted with the concerned employees.
 Questionnaires conducted with customers who are
enjoying loans and advances from the bank.
 Secondary data source of this paper are
listed here under
 1 .Banks credit manuals
 2. Internet
 3. Brochures
 4. Magazine news paper
Sampling Technique
The researcher used simple random sampling
method to select customers of the organization. The
researcher has taken only 120 credit customer.
Among this total credit customer, 40 respondents
were selected.
 Methods of Data Analysis
 The data collected analyzed using descriptive
data analysis and analysis on comparatives
figures by using tables and percentage tools
of analysis.
 Chapter 4
Data Presentation and Analysis
Analysis of Interviews
This research data analysis has 8 main point. The first point are:-
 Basic requirement to qualify for credit
 The main requirement is viability of the business.
 The bank has to strong policy and procedures towards loans and
advance
 Documentation that is Necessary for Loan Processing
 The banks has to check on the validity of the documents in the
case of default to settle the payment.
The checked documents are
• Trade license
• Financial statement and accompanying schedules
• Article and memorandum of association in the case of corporate entities
• Feasibility study in case of project financing
• Others accordingly
 Diversion of Borrowed Fund to Other Purpose
 the borrowed fund may be converted to unintended or illegal
business and this leads to the loan be doubtful.
 the main cause of the problem is absence of programmed visit
of the business site of the borrower.
 Reliability of Financial Statement
 most of the customers have not presented reliable
financial statement especially small firms.
 The main reasons for converting regular loan to
irregular
 identifying the real causes for irregular repayment or
even nonpayment is the corner stone of the solution
that might change the existing situation.
 the factor that the loans turned out to non-
performing loans is because of :
 lack of consultation and communication
 diversion of the borrowed fund to other purpose
 countries economic condition
 lack of foreign currency
 political conditions
 Bank’s repayment follows up system
 the bank has serious steps to follow the repayment
from verbal contact to legal action.
 Delay in Processing Loans
 the reasons for delay of loan processing are most of
the applicants do not deliver the required
documents on time.
 Analysis of Questioners Which are Collected from the Customers

From the selected 40 credit customers 37 of them have responded to the

questionnaires and these responses are analyzed here under

 The period of time that customers stayed in the business

environment
 most of the customers are experienced ( more than 5 years) in
different kinds of business environment.
 Number of times that the customers have taken a loan from
the bank
 almost all selected customers for questionnaires are longtime
customer and it implies that the bank has frequent loans .
 Problems Faced by the Customers
 Limited amount of loan approval.
 Collateral that has high value is very relevant and others.
 Bank’s trend in giving training to its customers
 There are a lot of loan customers who do
not get training.
 Reasonability of the criteria set by the bank to get
loan and advances
the major ones are listed here under.
 Loan applicant has to a business
 Collateral values have to equivalent to the
requested amount
 Audited financial statement for loan
request above 5,000,000 birr
 Viability and feasibility of the business
etc.
 Attractiveness of the bank‘s policy and procedures with regard
to loans and advance.
 Policy and procedures of the bank may not be adequate for
customers.
 Period of time taken by the bank to process loan application
 The rest percentage of the respondents goes to more than 30
days needed by the bank to complete the loan process
 Suitable of the banks repayment scheduled
 the customers are comfortable with the repayment schedule set
by the bank.
 Fair estimation of collaterals by the bank
 the interest of the bank to be secured reliable and strongly.
 Some other comments raised by respondents
The major comments which are collected from the respondent are
listed as follows.
 Lake of motivation of stapes in credit and for accepts of changes
 Lack of timely of credit policy and procedure
 The bank avails credit with firm analysis of loan files without any
bias and I am satisfied the handle clients
 Chapter 5
Conclusion and Recommendation

1.Conclusion
The analysis made in chapter four and comparison of the result against the literature
review has resulted in the under mention conclusion.
In the economic development of the country bank plays an important role as a financial
intermediary
In Wegagen bank, beneficiary of bank credit facilities are individuals companies cooperative or
the government
According to the findings gathered from the staff members more than average percent of the
respondents has come across with difficulties in providing loan ser
The major problems include matching of the generalized credit police to
specific loan request
Regarding the bank’s loan advisor service, procedures and repayment schedule;
below average percent of the respondents were agreed there exists a problem in
the area.

2.Recommendations
The following recommendation can be made for further growth and effective credit management
system of the bank.
•Emphasis should be made to enhance the credit facilities available by the bank in order to
attract new customers and maintain the existing one.
•It is inevitable, among other things loans not well processed turn to NPL (Non-performing loans)
•Training should be given to staff members on the credit management system customer handling.
•After giving of loan, programmed visits should be made in order to help the bank to closely
follow the direction of business of the customer

•The bank has to seek ways on dealing with collateral requirements and valuation problems
On the side of the borrowers
•Preparing plan that shows the purpose of the loan.
•Forecast the capital required to perform the task.
•Preparing plan that shows settlement of the bank loan
•• Provide financial statements that are reliable and represent facts
On the bank side
•Collect date, information and document relevant to the loan application to handle assessment and
appraisal of credit.
•Evaluate acceptability of the purpose for which the loan is requested and the proposal regarding
its settlement.
•Consult the applicant on the outcomes of the evaluation that is made based on the information,
data and documents submitted.
•Provide sufficient information about the bank’s credit policy and procedures.
•Make simple and understandable the terms in the loan contracts.
•Credit seminar to customer so that they should be further strengthened.
In general the bank should maintain and strengthen credit administration on the following
areas: time taken to process customer loan request, follow up of outstanding loans, consultation
and encourage customer participation to have efficient credit manage