Research Dissertation Presented to the Faculty of Commerce in Partial Fulfillment for the Award of Masters of Accounting and Finance
The purpose of the study was to find out the causes of non-performing loans in commercial Banks. The study focused on level of Non Performing Loans in CRDB Bank and the causes or factors for Non-Performing Loans.
A case study research design of CRDB Bank Limited was employed. Interviews and questionnaires were used to collect data for the study. The sample size used was seventy nine (79). This comprised 44 officials of six (6) CRDB Bank branches and 35 beneficiaries of CRDB Bank credit facilities. Qualitative and quantitative methods of analyses were used.
This thesis is organized into five chapters. Chapter one covers introduction of the study, background of the problem, statement of the problem, research questions, objectives, significance, scope, limitations and delimitation of the study. Chapter two presents review of related literature. In this chapter, theoretical underpinnings are discussed in the view of expanding an understanding of the key issues concerning Non-performing Loans. Chapter three, research methodology covers study design, sampling techniques; data collection methods and analysis are presented. Chapter four discusses various findings and analysis, while several recommendations and conclusion are found in chapter five.
The findings revealed that external factors are more prevalent in causing non performing loans in CRDB Bank Limited. The factors causing non performing loans were natural calamities or change in economic condition such as inflation rates, government policy, change in real GDP and the integrity of the borrower. Findings suggest that integrity of borrower such that use of funds for purposes different from agreed ones as a major factor that cause NPLs. Findings imply that close monitoring of borrowers is critical to lending business.
Establishing a good relationship with borrowers was found to be the most favorable strategy which can be employed by CRDB in the effort of reducing non-performing loans also CRDB need to strengthen their loan management process especially in monitoring their borrowers and probably come up with new ways of monitoring them.