Assessment of factors that contribute to poor performance of loans in financial institutions: a case of Tanzania investment bank limited (TIB)

Abstract

The research examined factors that contribute to poor performance of loans in financial institution in Tanzania using TIB as a case. Specifically, the research (i) examined whether high interest rate on loans contribute to poor performance of loans, (ii) find out whether clients production loss contribute to poor performance of the issued loans and (iii) examined whether poor loan appraisal, monitoring and recovery may also contribute to poor performance of loans granted to various clients. This research employed quantitative research design where close-ended questions were only used to collect data from TIB credit officers, TIB ordinary employees as well as loans beneficiaries. The findings revealed that loans poor performance is highly determined by interest rate. According to the findings poor performance of the issued bank loans is associated to high loan interest rate as the condition creates unsuitable environments such as time lag in payment, increased incentives to save rather than spending. Others include fall in consumption and investment, reduced confidence among the clients as well as clients depts. Apart from the mentioned factors, the research also revealed that the loss in production also contribute to poor performance of loans as the condition resulted from decrease of sales volume, clients abandonment in production, less power in production, loss of profit, poor customer retention which therefore, resulted into failure for loans beneficiaries to pay loans. For the last objective, the findings also showed that poor follow-up identified accelerate to poor performance of loans. Such findings have implications to the management practices. As a solution to the prevailing situation it is recommended that management should seek for the appropriate incentive to control the situation.