CHAPTER ONE
INTRODUCTION
1.1 Introduction
A Rumanian proverb insists that a man without money is like a bird without wings. The proverb asserts that money is very important especially for the banks. A bank is established to deal with money. The primary function of most public sector and private sector banks is to accept deposits from savers and provide it in the form of loans to the borrowers. In this days there are numerous challenges threatening banks in their day to day operations. One of these challenges is the problem of Non-Performing Assets (NPA) or Non performing loans (NPL). An asset which ceases to generate income to the bank is referred to as a Non-Performing Asset. NPA includes a borrower’s defaults or delays in interest or principal…show more content… SBB/43/2007, an NPA categorized as special mention is any loan or advance that past due 30 days or more, but less than 90 days and a substandard NPA is an advance that past due 90 days or more but less than 180 days. An NPA categorized as doubtful is an advances that past due 180 days or more but less than 360 days. Finally, an NPA categorized as loss is an advance that past due 360 or more days.
In many countries the performance of banks with regard to NPAs is widely studied. In addition, the level of NPA between public sector and private sector banks is also studied intensively with the exception of Ethiopia. That is why this study focuses on comparative analysis of non-performing assets performance between public sector and private sector banks. Few studies has been conducted in Ethiopia regarding NPAs (Desalegn, 2014, Gezu, 2014, Gadise, 2014, Seyoum, Nigussie & Tesfaye, 2012, and Negera, 2012) but none of these studies investigated the level of NPA between public sector and private sector…show more content… In which sector of banks does NPA is higher and in which sector of banks does NPA is lower is not known as there are no previous studies in this regard. Thus, the main purpose of this study is to compare the non-performing assets performance between public sector and private sector banks in Ethiopia. In this regard, no study has been conducted previously to compare the public sector and private sector banks non-performing loans performance. This study is going to be the first ever study in this issue in