Commercial banks thrive on credit granting decisions and need to carefully assess the creditworthiness of the potential borrower before granting credit. The banks are interested in identifying the factors which highly influence the borrower’s creditworthiness. This study intends to categorize and label the variables into major component-factors that influence the creditworthiness of the borrowers. The results reveal that borrower’s status and performance, borrower’s personality and relationship with branch, and collateral quality are the main factors that influence the creditworthiness of the borrowers. The study is significant as it breaks new ground in Ethiopian commercial bank lending.

Commercial banks form the financial backbone in any economy. They are mainly engaged in providing loans and advances to business enterprises of different magnitudes thus facilitating capital formation in the country. Banks are owned by the state (known as state-owned or public sector commercial banks), by the entrepreneurs (known as private sector commercial banks), or of foreign origin (known as foreign banks). They play a very significant role especially in a bank-dominated economy. Ethiopia, a bank-dominated developing economy in African continent, had only state-owned commercial banks till 1994, when the first private commercial bank, viz., Awash International Bank, was granted license to operate banking in the country. Since then, a number of private banks have started operating gradually, and as of June 2015, there are two public sector commercial banks and 16 private sector commercial banks with a branch network of 2,661—956 of them functioning in the capital city Addis Ababa, and the remaining 1,705 operating in the rest of the country.