AKSUM UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND
FINANCE

RESEARCH PROPOSAL EVALUATION OF LOAN AND

ADVANCE MANAGEMENT SYSTEM OF PRIVATE BANK OF
LION INTERNATIONAL BANK, AKSUM BRANCH

BY; ABUBEKER SULTAN

ID NO; 0006/06
ADVISOR; REDAE K.

DEC 2015
AKSUM, ETHIOPIA

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Table of content
CHAPTER ONE; INTRODUCTION……………………………………………………………1
1.1 Background of the study………………………………………………………………..1
1.2 Statement of the problem……………………………………………………. ………..2
1.3 Objectives of the study………………………………………………………. ……….3
1.3.1General Objectives…………………………………………………….. ……….3
1.3.2 Specific Objectives…………………………………………………………….. 3
1.4. Significance of the study……………………………………….................................3
1.6scope of study………………………………………………………………………………4
1.6 Organization of the paper………………………………………………………………….4

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2.CHAPTER TWO; RELATED LITERATURE
REVIEW…………………………………………………………………………………………………………………..5
2.1 origin &growth of banking…………………………………………………………………..5
2.2meaning & function of banks…………………………………………………………………5
2.3 loan and advance management system………………………………………………………6
2.4 loan and advance………………………………………………………………………………7
2.5 types of loan and advances……………………………………………………………………8
3 CHAPTER THREE……………………………………………………………………………..9
RESEARCH DESIGN&METHODOLOGY………………………………………………………9
3.1 research design…………………………………………………………………………………9
3.2 source of data &collection technique………………………………………………………….9
3.3sample size & sampling techniques……………………………………………………………9
3.4method of data analysis &presentation………………………………………………………..9

CHAPTER ONE
INTRODUCTION
1.1. BACKGROUND OF THE STUDY
In this modern world, commercial banks serve variety of functions of these the main one
is lending fund to the borrowers from deposit they received. Commercial bank are so
named because they specialize in loans commercial business, (encyclopedia, 2004)
Commercial bank is one of the most important institutions in account. Bank act as so
between surplus budget unit and offer loan to deficit budget units, the main business of a
bank is spread between interest income and loan and interest expense on saving.
Commercial bank is monetary institutions which serve as interest of the deposition by
providing with security from surplus resources and on the other hand mater the profit by
investing its resources in the productive measurement by extending loan (Ibid, 2004).
A bank with in effective loan and advance management system may result on non-
performing loan that don’t bring any interest income and may force the bank to bear
interest for depositors of such lent amounts. This may even tallied to bank rupees of bank
losing its spread.

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Therefore it is an effective loan and advance management system is indispensable for any
such institution. This is because of a loan and advance management system s isn’t
properly operated the bank will lose both economic and financial privilege, (Ibid, 2004)
Therefore the study alms to evaluate the loan and advance management system in lion
international bank AKSUM branch

1.3. Statement of the problem

One of the main objective of commercial bank is profit earning. Commercial bank gets their
profit form loan and advance despite the other service. Profit is mainly function of both the
volume and quality loan and advance managements system in the bank. Among other a good
quality of credit consider as good source of profit, (Kumar, 2002)
Lone management is a system on the performance of income generating asset i.e. loan
and advances, offer comprehensive management information. It is specifically design to
meet the unique requirement of organization for the final payment of loan. Loan and
advance as a result of theft, not using proper policy and procedure, repayment time,
lending choice and customer handling. Such loan and advance management practice may
make to the bank to declare bankrupt, (Kumar, 2002)
Loan ad advance management system of private bank require effective management
attention and focus, unless different prove arise due to uncollectible loan and
management systems such as opportunity cost, carrying cost, the time value of money
decrease, distribution of organization and the like, so the researcher will deal with
identifying problem that affect the level of loan and advance management system,. Them
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the paper will try to evaluate loan and advance management system of LION
INTERNATIONAL BANK Aksum branch and also will try to find the solution for the
problems.
Therefore the paper will address the following research question
1. What are the problems facing by the bank to borrowing with loans?
2. What are the appropriate policies and procedures as private bank?
3. How is the effectiveness of loan and advance management system of a bank?
4. What was the impact of loan and advance management system on non-performing
loan?
1.4. Objective of the study
1.4.1. General objective of the study
The main objective of this study will be to evaluate loan and advance management system of
lion international bank, Aksum branch

1.4.2. Specific objective

In line with the general objective this research will aim at scheduling the following specific
objectives.
 To assess whether the bank use appropriate policies and procedures as private
banks.
 To identify the main problems faces by the bank and the borrower with loan.
 To assess impact of loan and advance management system of nonperforming loan.
 To assess effectiveness of loan and advance management system of the bank.

1.5. Significance of the study

The major significance of the study is it will be important for the bank to establish
appropriate loan and advance management system, to identify the factor that affect
loan and advance management system and to provide a constructive idea.

It will be also important to the researcher to do further researches, to develop skills and
knowledge in these area.
It will be also important for the future researches to serve as good references and to
provide general information for the concerned experts.
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1.6. Scope of the study
To scope of this study will mainly focus on assessing the loan and advance management
system lion international bank, Aksum branch. The bank has large number of customers,
the researcher for the sake of manageability of the study focuses only on such customers
who have long term loan and advance relation with the bank.
1.7. Organization of the paper
The paper will organized in five chapters. The first chapter is introductory part that
includes background of the study, background of the organization, statement of the
problem, objective of the study, significance of the study, scope of the study and
limitation of the study. The second chapter will concern with literature review, the third
chapter will contains research design and methodology, the fourth chapter will contains
data presentation and analysis and the last chapter will present summary of major
findings, conclusion and recommendation.

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 CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1. INTRODUCTION
Banking and other financial service are available in Ethiopia which the National bank of
Ethiopia serves are central bank. The commercial banking functions are performed by
one state owned commercial bank and a number of newly emerging private commercial
banks. (Addis Ababa Business Dictionary, 2001)

2.2. Origin and growth of banking

Banking originated in an Ancient Mesopotamia where the royal places and temples
provided secure places for the keeping of grain and other commodities. In Egypt to the
centralization of harvests in state ware houses led to the development of system banking.
Written order for the withdrawal of separate lots of grain by owners whose crops had
been deposits there for safety and convenience or which had been compulsorily deposited
to the credit of the king. Soon become used as a more general method of payment of
debts to other persons including tax gathers, priests and trades. Even after the
introduction of coinage, these Egyptian grain banks served to reduce the need for
precious metals which tended to be researched foreign purchase particularly in
connection with military activities (http://chestofbooks.com/finace/3/04/2010)

In general the term bank in the modern term refers to an institution having the features. It
deals with money; it accepts deposit and advance loan. It also deals with credit; it has the
ability to create credit. Its commercial institution, it aims at earning profit. Its unique
financial institution that creates demand deposits which serve as a medium of exchange
and as a result the banks manage payment system of the country .
(http://chestifbooks.com/finance.3/04/2010)

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2.3. Meaning and function of commercial banks
Meaning of commercial banks
Commercial banks are organized as a joint stock company system for the purpose of
earning profit. Although, the commercial banks attract depositors of all kinds current
saving and fixed saving, their resources are chiefly drawn from current depositors which
are repayable on demand, (Shekhar and Shakhar, 1996)

Functions of commercial banks

In the modern world, banks perform so many functions and such varied nature that it was
even difficult to imagine them. It’s not possible to prepare an exhaustible list of these
function as the service that the bank provides these day are so diverse and varied and
responsibility are so great and every expanding that its final stage can hardly be
predicted. The following are some functions of commercial banks, (Shekhar, 1974).
Accepting deposit
The first important function of commercial bank is to accept deposits from those who can
save but not profitably utilize saving themselves. To attract savings from all sorts of
individuals the banks maintains different type’s accounts.
Fixed/ time/deposit accounts: money is those accurse is expiry of period. The rate of
interest on this account is higher than on other types of deposit. Current/ demand/ deposit
accounts: these accounts are generally maintained by the traders and business man who
have made a number of payments every day. The depositors can withdraw money from
these accounts on the demand. Normally, no interest is paid on these accounts and cherub
facility is provided to the depository. Saving deposit account: the aim of these accounts is
to encourage and mobilize small savings of the public. Rate of interest paid of these
depositors is low as compared to that on fixed deposit, (K.C. Shekhar, 1974).
Loans
The second important function of a bank is advancing of loans to the public. After
keeping certain cash reserve, the banks lend their deposits to the needy borrowers. Before
advancing loans the banks satisfy themselves about the credit worthiness of the borrower.

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The commonly types of loans granted by the banks are term loans, overdraft facility and
others, (D.MURALEEDHARAN 2009)
2.4 Loan and advance management system
The system is bout on the premise that the manager of the organization must understand
as the various systems that compose that the entire operation,
(http://chestofbooks.com/finance/3/0/2010)
Modern management
Modern management theories indicate further requirement extension and synthesis of as
classical and non-classical. Behavioral/ to management. management is the planning,
organization, staffing. Directing and controlling the activity of people working group in
order to achieve the objective of the group, (Kumar and Mittal, 2002)
The loan
There is predetermined time for repaying a loan and general the lender have bear the risk
that the risk that the borrower may not repay a loan (although modern capital markets
have developed many ways of managing this risk
(http://chestofbooks.com/finance/3/0/2010)
The loan management system
The loan management system is a complete a mute-user loan management system. The
system can be used by banking institution, micro-lenders, financers as well as retail
institution sale type transaction. Loan management system is designed for the settlement
of use by front line staff, consumer service staff and management.
The loan management system has recently been completely re-written to make use of
latest technology and to include latest concepts. (Shakhar, 1996)
Loan management system includes the followings;
Credit management information system
The effectiveness of the banks process heavily depends on the quality of management
system.
Loan policy
Where the form and contents of a loan policies and procedures variety will from bank to
bank, these are; - Loan authorities, Limits on aggregate loan and commitment, Under

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writing criteria , Financial information and analysis requirements, Pricing grid lines ,
Collection and change offs , Report requirements and Guidelines for loan participation

Concentration management techniques

Banks especially large ones have been adopting more active management parties.
Diversifying a way from a limit can be accomplished by reducing certain exposures or
increasing the borrower base.
Personnel
Compare overall staffing levels in the lending and loan control areas with the size
complexity and level of risk. Determine whether a bank program ensures that staffs
acquire the appropriate skills. Analyze the lending areas compensation plan and
performance evaluation system, (Ibid).
Loan and advance
Loan
It is an arrangement in which a lender gives money or property to a borrower and agrees
to return the property or repay the money usually along with interest at some future time.
Unusually it is predetermined time for repaying of a loan and general the lender has bear
risk that borrower may not repay a loan. (Kumar and Mittal, 2002).
Advances
Advances are credit facilities in the form of written promises that should not necessarily
be given on physical money as in loans, (Kumar and Mittal, 2002).
Meaning of credit
The word “credit” is derived from the Latin word creditum which means to believe or
trust, in economics. Te term credit refers to a promise by one party to pay another for
money borrowed or goods or services received. It is a medium of exchange to receive
money or goods on demand at some at future date, (Kumar and Mittal, 2002)

2.6. Types of loans and advances

Commercial banks usually divided into Term loans, Participation loans and Personal
loans
Term loans
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Term loan is debt originally scheduled for repayment in more than one year but generally
less than ten years. Term loans are physically money lent to borrowers in exception of
period repayments. It is a method of financing which is characterized by periodic
repayments that can be monthly quarterly and semiannually or on lump sum basis. This
can be categorized in to three based on duration. Short term loans: loans term have
duration not exceeding one year and are normally for working capital to meet financial
requirements of customers. Medium term loans: have duration not exceeding five years
and are used for purchase of capital goods, light vehicles, public transport vehicle,
completion of buildings, purchase of residential building etc. Long term loan: have
duration exceeding five years, such loans are grant for the construction of residential
houses, commercial and industrial buildings and large scale investments. (Dashen Bank
credit manual, 2001).

Over draft facility

Over draft is usually temporary arrangements and this facility is given to the customer
having current account under over-draft facility. The amount of over-draft the period for
which the accommodation is granted are settled between a loan and over draft is that,
while in case of former, the customer pays in interest on sum standing to the debt of his
loan interest, in the latter case he pays interest of customer, over draft is more favorable
that a loan generally back charges high rate of interest on over draft than on loan, (Kumar
and Mittal, 2002).
Over drawl facility
An over draw is a facility where by customers are allowed to draw temporarily funds to
bridge temporary shortage of fund overdraft is not a facilities that is allowed in the same
way banks allows over draft can be approved by authorized officials of the when
recovery of such overdraw is expected from reliable substantiated remittance in transude
export bill pending negotiations or any other source repayment considered genuine.
The facility is granted to customers to maintain current accounts with acceptance
swing and turnover the accounts. Besides the customer should presented genuine and

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 acceptable transit export bills, pending payment etc. (D.MURALEE DHARAN,
2009)

CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
3.1. Research design
The researcher will use descriptive research design. Because the researcher must be able to
define clearly, what he wants to measure and must find adequate method for measuring it
along with a clear cut definition of population he wants to study, and also must make enough
Provision for protection against bias and must maximize reliability, with due concern for the
economical completion of the research study.
3.2. Source and method of data collection
The researcher will use primary source of data and secondary source of data, the
primary data will collect by using open ended and close ended question naked and
obtained from the employee of the bank and secondary data will collect books manuals
and internet. It helps in sorting out information relevant to the study.

3.3. Sample size and sampling technique

The total population of the study is 10 people such as employees and management
of the bank, from these populations, the researcher will use all population. And the
researcher use samples through non-probability such as census sampling technique.
3.4 Method of data analysis and presentation
The data collected will analyze through descriptive analysis technique. The techniques
will be include tabulation and percentage technique will be used.

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3. Work and Budget Plan

3.1 Time Schedule

There are different activities in this study so to undertake all activity on time the researcher
depends according to the following schedule.

No work Activity Time of execution

1 Title approved November

2 First proposal draft December

3 Second proposal draft January

4 Data collection February

5 Data analysis & process February

6 Literature review March

7 Research complete& printing Jun

8 Presentation Jun

3.2 Budget schedule The resource necessary to undertake the proposal study are
presented as follows in a detailed manner.

No Item Units of Quantity Unit of price Total cost

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 measurem
ent
Birr cents

Birr cents

1 Stationery
material

Paper Packets 1 90 00 90 00

Flash disk Number 1 150 00 150 00

Re-writer CD Number 1 25 00 25 00

Pen Packet 1 60 00 60 00

Photo copy of Pages 60 00 50 60 50

different
literature

Sub total 385 50

2 Personal expense

Internet service Hrs 150 0 20 150 20

Transportation Km 200 00 200 00

cost

Miscellaneous 200 00 200 00

expense

Sub- total 550 20

Grand Total 935 70

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REFERENCE
 Shekhar and Sheckhar (1996), Banking theory and practice, 9th edition
 Sheckhar (1974), Banking theory and practice, 2nd edition
 Kumar and Mittal (2002), Loan and advance provision system, 2nd edition
 D.muraleedharan, modern banking and practice 2009
 http://chestof bookshop/finance/3/04/2010

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