Factors for Decline in Lending and Increase in Non-Performing Loan in CRDB BANK
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Mzumbe University
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A Dissertation Submitted in Partial Fulfillment of the Requirements for the
Degree of Master of Business Administration in Corporate Management
(MBA-CM) of Mzumbe University.
Non-performing loans are known to be among major problems faced by financial institutions in the global context. Non-performing loans when left unattended cause a lot of harms, including the financial crisis of the institution as well as a respective country. In this regard, the study on non-performing loans is vital for all stakeholders in the financial sector. Therefore, this study intended to address this concern by examining the determinants of non-performing loans with the specific title ‘factors for the decline in lending and increase in non-performing loans in Tanzania’s commercial banks’ with CRDB as a case study. The researcher examined bank’s internal factors namely the adequacy ratio of capital and liquidity ratio as well as macro-economic factors that cover economic growth, unemployment, GDP, inflation and the rate of lending which results to nonperforming loans and consequently decline in lending. Based on the nature of the study and for the purpose to enhance the achievement of the main objective of this study, the researcher employed a secondary data source as a means for data collection. Thus, the study collected secondary data covering ten (10) between 2010 to 2019 from CRDB as an organisation of the choice because it has data and collection of data was simple for the researcher. The study chose an explanatory research design as it covers research objectives in its fullest. This design is useful for examining the cause and effect of variables which is a central issue in this study as the cause and effect of lending, and non-performing loans were studied. Apart from the explanatory research design employed, also the study employed a fixed-effect model to find out the NPLs determinants. In the study, it was noted that non-performing loans were in declining slope among commercial banks in Tanzania. Furthermore, the results provide that UE ratio and INF had a positive; however, its effects on NPLs is insignificant among commercial banks in Tanzania. On the other side, real GDP, banks capital adequacy ratio, liquidity ratio, economic growth and average lending rate had a negative and statistically significant effect on NPLs of commercial banks in Tanzania.
Non-performing loans are known to be among major problems faced by financial institutions in the global context. Non-performing loans when left unattended cause a lot of harms, including the financial crisis of the institution as well as a respective country. In this regard, the study on non-performing loans is vital for all stakeholders in the financial sector. Therefore, this study intended to address this concern by examining the determinants of non-performing loans with the specific title ‘factors for the decline in lending and increase in non-performing loans in Tanzania’s commercial banks’ with CRDB as a case study. The researcher examined bank’s internal factors namely the adequacy ratio of capital and liquidity ratio as well as macro-economic factors that cover economic growth, unemployment, GDP, inflation and the rate of lending which results to nonperforming loans and consequently decline in lending. Based on the nature of the study and for the purpose to enhance the achievement of the main objective of this study, the researcher employed a secondary data source as a means for data collection. Thus, the study collected secondary data covering ten (10) between 2010 to 2019 from CRDB as an organisation of the choice because it has data and collection of data was simple for the researcher. The study chose an explanatory research design as it covers research objectives in its fullest. This design is useful for examining the cause and effect of variables which is a central issue in this study as the cause and effect of lending, and non-performing loans were studied. Apart from the explanatory research design employed, also the study employed a fixed-effect model to find out the NPLs determinants. In the study, it was noted that non-performing loans were in declining slope among commercial banks in Tanzania. Furthermore, the results provide that UE ratio and INF had a positive; however, its effects on NPLs is insignificant among commercial banks in Tanzania. On the other side, real GDP, banks capital adequacy ratio, liquidity ratio, economic growth and average lending rate had a negative and statistically significant effect on NPLs of commercial banks in Tanzania.
Keywords
Non-performing loans, Financial institutions in the global context