an Assessment of Alternative Techniques to Foreclosure on Recovery of Stressed Secured Loans in Tanzania
No Thumbnail Available
Date
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Mzumbe University
Abstract
Description
A Dissertation Submitted in Partial/Fulfillment of the Requirements for Award
of the Degree of Master of Business Administration - Corporate Management
of Mzumbe University
Alternative recovery techniques to foreclosures (workouts) are recently gaining popularity in the banking sector in Tanzania. This study aims to assess workouts by commercial banks in Tanzania on recovery of stressed secured loans. The study also determines challenges and limitations of these workouts used by commercial banks in Tanzania. The study combined three theories namely; Theory of Information Asymmetry, Adverse selection theory as well as Moral hazard theory which together explained the theoretical point of view for this study. Ten (10) banks were selected for the study. Data collection was done through banks internal reports. Ten questionnaires were given to ten credit managers one from each bank; all were dully filled and completed by the respondents. Data was analysed through descriptive statistics to provide thorough understanding of the workouts and the challenges there with. The study found out the workouts applied included loan restructuring, loan refinancing, and transfer of loan to a new borrower, forbearance and short Sale of the Property. However, these recovery techniques there are challenges and limitations in encountered. These are related to court injunction, fund deviation, incompetency and dishonesty in financial reporting as well as the Case of Junior Liens. The study concluded that banks prefer loan restructuring to recover their stressed loans and in cases where such workout is not allowed by the first lender then loan refinancing is another commonly used workout. Forbearance is the least workout used due to moral hazard risks associated with it. This study recommend that banks should increase efficiency in loan underwriting processes, strategize on increasing financial literacy to borrowers, and make efforts on applying other alternative techniques of recovery rather than restructuring method.
Alternative recovery techniques to foreclosures (workouts) are recently gaining popularity in the banking sector in Tanzania. This study aims to assess workouts by commercial banks in Tanzania on recovery of stressed secured loans. The study also determines challenges and limitations of these workouts used by commercial banks in Tanzania. The study combined three theories namely; Theory of Information Asymmetry, Adverse selection theory as well as Moral hazard theory which together explained the theoretical point of view for this study. Ten (10) banks were selected for the study. Data collection was done through banks internal reports. Ten questionnaires were given to ten credit managers one from each bank; all were dully filled and completed by the respondents. Data was analysed through descriptive statistics to provide thorough understanding of the workouts and the challenges there with. The study found out the workouts applied included loan restructuring, loan refinancing, and transfer of loan to a new borrower, forbearance and short Sale of the Property. However, these recovery techniques there are challenges and limitations in encountered. These are related to court injunction, fund deviation, incompetency and dishonesty in financial reporting as well as the Case of Junior Liens. The study concluded that banks prefer loan restructuring to recover their stressed loans and in cases where such workout is not allowed by the first lender then loan refinancing is another commonly used workout. Forbearance is the least workout used due to moral hazard risks associated with it. This study recommend that banks should increase efficiency in loan underwriting processes, strategize on increasing financial literacy to borrowers, and make efforts on applying other alternative techniques of recovery rather than restructuring method.
Keywords
Banking sector in Tanzania