Credit risk management in financial institutions and its effect on non-performing assets: a case of Stanbic bank, Exim bank and Tanzania Postal Bank
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Date
2012
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University of Dar es Salaam
Abstract
The overall objective of the study was to examine credit risk management practices in selected banks and their effect on non-performing assets. The study intended to focus on the following specific objectives; examined the screening criteria used by commercial banks in issuing loans, determined the reasons behind rising problem of nonperforming assets when they fall due, established the relationship between lending methods and follow up schedules during debt collection and analyzed the level, situation and trend of nonperforming loans.
Since the study collected data once, processed them and provides an appropriate report, the study was mainly descriptive cross – sectional. It was conducted using survey technique by collecting primary data at Stanbic bank, Exim Bank and Tanzania Postal Bank using questionnaires. Two sets of questionnaires were designed and distributed to 36 respondents within the selected sample frame, where data was collected and processed using the descriptive statistics by the application of a Software Package for Social Scientists (SPSS). A five point’s likert scale was used in data collection to facilitate classifying the respondents’ attitude to the study. It is concluded that credit risk management in financial institutions has negative effect on the nonperforming assets in Tanzania. The study indicated that the screening criteria such as annual revenues, annual operation costs, assets structure and capital structure are used by commercial banks in issuing loans among others. The rising problem of nonperforming assets when they fall due were caused by ineffective loan recovery measures, poor credit management skills, lack of adequate information on borrowers, non-professional working, high interest rate, poor banks’ credit policy and lack of credit departments’ autonomy. Moreover are absences of credit reference bureau, ineffective legal enforcement, inability to track borrowers due to lack of national identity. Furthermore, the study indicated that the trend of nonperforming loans is increasing at least in the past 5 years. Therefore, we recommend that banks should observe appropriate credit measures to resolve the challenge of nonperforming assets.
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Keywords
Credit, Management, Credit Risk Management, Financial institutions, Stanbic bank, Exim bank, Tanzania postal bank, Tanzania
Citation
Peter, K (2012) Credit risk management in financial institutions and its effect on non-performing assets: a case of Stanbic bank, Exim bank and Tanzania Postal Bank, Master dissertation, Universit of Dar es Salaam. (Available at http://41.86.178.3/internetserver3.1.2/detail.aspx)