The Impact Of Credit Risk Management Practices On The Level Of Non-Performing Loans At Fbc Bank (2009 – 2021). · Electronic Theses and Dissertations

Author

Ruvarashe Mujuru

Title

The Impact Of Credit Risk Management Practices On The Level Of Non-Performing Loans At Fbc Bank (2009 – 2021).

Abstract

The purpose of this study was to analyse the impact of credit risk management practices on the level of non-performing loans at FBC Bank from 2009 to 2021. Since the adoption of the multiple currency system in 2009, the banking sector in Zimbabwe witnessed an upward surge in non-performing loans rising from 1.8% to close at 16% as of 31 December 2013. Many banks were closed by the regulatory authorities during the period 2011 and 2012 and in almost all cases; the issue of non-performing loans and credit risk management practices were apparently cited. Emphasis is now being placed on credit risk management practices to combat the problem of non-performing loans and in view of the importance attached to credit risk management practices, it is critical to study its impact on non-performing loans as it also impacts the bank’s lending ability and profit margin. The target population is categorised into two; the quantitative and qualitative study populations. The population for the quantitative portion of this study consists of all Branch Credit Analysts and all Head Office Accounts Relationship managers, who deal directly with client loans. FBC Bank has 56 branches around Zimbabwe and its Head Office is located in Harare, Zimbabwe. There is a total of 86 branch Credit Analysts also known as Loan officers and a total of 80 Accounts Relationship Managers at Head Office. To ensure that the research findings can be generalised to the entire FBC Bank, the research will draw its sample elements from all FBC branches in the country. The target population consists of 166 credit oriented staff, all of whom are conversant with credit risk management strategies the Bank had adopted over the years. On the other hand, the target population for the qualitative portion of the study consists of 6 top Risk Managers at FBC Bank. The research data was collected through questionnaires and interviews. The study used primary and data and the data was presented using tables, graphs and pie charts. The study findings established non-performing loans are a problem at FBC Bank. It was further established that lenient credit terms, poor credit policy and poor credit monitoring are the main causes of non-performing loans at the branch. The study findings established that it was strongly agreed that there is a relationship between credit risk management practices and the level of non-performing loans. Inadequate credit risk management results in high non-performing loans therefore credit risk management have got an impact on non-performing loans. The study findings established that credit applications were not thoroughly assessed before final approval thereby rendering credit risk management practices ineffective. It was however established that the bank has put in place mechanisms to combat the non-performing loan book. This study concludes that credit risk management practices has got an impact on non-performing loans and inadequate credit risk management leads to high non-performing loans. The study further concludes that there is a negative relationship between credit risk management and non-performing loans. Weak credit risk management systems invariably results in high non-performing loans. This study recommends enhancement of credit risk management systems to avoid concentrated lending. Clear and sound credit granting and approval procedures should be established to ensure granting of loans to deserving clients only and that no individual is able to override established credit granting process. The study also recommends the use of credit limits, credit insurance and collateral to curb non-performing loans. The study further recommends adoption of relationship management approach to curb misuse of borrowed funds by clients.

Date

December 2022

Publisher

BUSE

Keywords

Credit Risk Management

Non-performing loans,

Bank performance

Supervisor

N/A