The Determinants of Non-Performing Loans Amongst Tier 4 Banks in Ghana. A Case Study of FNB bank Ghana Limited.

Abstract

Non-performing loans refers to credit facilities which have gone bad and pose profitability problems to banks. Banks in their daily operations, especially in their credit functions seek to identify risks pertaining to credits under consideration and/or management in order to prevent them from crystallizing into bad debts in their books. In this study, FBNBank Ghana Limited is used as a case study to identify the unique bank-specific factors and customer-specific factors that are contributing to the rising non-performing loans in banks in Ghana. The study employed both qualitative and quantitative descriptive methodology. The findings of the study proved that poor credit monitoring, poor credit assessment, lenient credit terms and incompetence of staff are largely to be blamed for the non-performing loans at FBNBank Ghana Limited with high interest rates being a lesser contributory factor to high non-performing loans at the bank. Three customer segments (retail, commercial and corporate) were considered. Findings from the study indicate that the bank’s borrowing customers have multiple banking relationship and multiple loan facilities from their bankers with a more than average of the respondents being unable to pay their multiple loans. The study found that, delays in project execution, wilful default of some borrowers, financial constraints and fund diversion were major causes of the poor performance of loans as related to customer-centric factors. The researcher made recommendations on trainings for staff, quick processing of credit facilities to meet the timelines and business exigencies of the bank’s customers, creation of a credit monitoring mindset in both risk management and business units to improve the performance of loans in the bank.