Credit risk management in Tanzanian commercial banks

The purpose of this study was to evaluate the credit risk management in Tanzanian commercial banks. The focus was on asymmetry of information, adverse selection and moral hazards problems and their contribution to loan defaults in lending business of Tanzanian commercial banks. The objectives of the study was to assess whether above problems are actually facing the lending business Tanzanian commercial banks, how these banks and BOT which is a supervisory body address those problems as well as their contribution to loan defaults. Twenty out of twenty six commercial banks operating in Tanzania were surveyed. Questionnaires, interviews and documentary review instruments for data collection were used. This findings were that asymmetry of information, adverse selection and moral hazards are problems facing Tanzanian commercial banks lending business. Asymmetry of information and adverse selection are the key sources of loan defaults in these banks. Loan applicants screening and project and collateral evaluation together with frequent inspections and effective follow ups of borrowers and projects financed by the bank are mechanisms used to address the above problems