An analysis of the commericial banks default rates pre/post liberalisation in Tanzania: cases of CRDB (1996) and NBC Ltd.

Default problem has been a major contributing factor for commercial Banks poor performance in the country since the Nationalization of Financial sector. This situation forced the Government in early 90,s to liberalize the financial sector together with other sectors of the Economy. This study has analyzed separately the default rates and variance (measure of riskiness) of the default for 9 years before liberalization and 12 years after liberalization. Primary data were collected through questionnaires and secondary data from various documents which were obtained from the library. The findings have shown that the mean default rate as well as the risk to the lending bank had increased post liberalization. Banking institutions should under no circumstances grant partially secured or unsecured loans ensure that the documents issued as collateral are well kept, share information (concerning the viability and credit worthiness of borrowers) and contract enforcement problems which can increase the risk of loan default. The Government on its part should also create conducive environment for the banking institutions to smoothly operate. This includes; maintaining macroeconomic stability and avoiding financing large fiscal deficits from the domestic banking system, accumulating savings in the domestic banking system to create more room for private sector borrowing. Improving the institutional environment for bank lending by strengthening the commercial legal system, controlling inflation and exchange rate volatility which may increase the risks of lending and enforcing the prudential regulations, building and encouraging strong private sectors to increase the number of creditworthy borrowers.