EXAMINING THE IMPACT OF LOAN DEFAULTS ON COMMERCIAL BANKS: CHALLENGES, RECOVERY STRATEGIES, AND EFFECTIVENESS OF MITIGATION MEASURES
DOI:
https://doi.org/10.7492/3t52p198Abstract
Background: This study investigates the impact of loan defaults on commercial banks, examining factors influencing default rates, recovery challenges, and the effectiveness of various mitigation strategies.
Objectives:1. To analyze the effects of loan defaults on commercial banks. 2. To understand and address the problems encountered during loan recovery. 3. To evaluate measures that could help reduce the incidence of loan defaults.
Methods: A survey research design was employed, with a sample size of 75 participants. Primary data were collected through structured questionnaires distributed to bank employees, focusing on loan types, recipient demographics, default rates, and recovery challenges. Secondary data were obtained from textbooks, journals, and scholarly articles. Statistical tools used include percentages and Chi-square tests for data analysis.
Results: The study found that the majority of loans granted were short-term (58.67%), with industrial loans receiving the largest share of 52%. Key problems in loan recovery included difficulties in locating defaulters (54.66%) and insufficient collateral (30.67%). Corporate enterprises were identified as the highest contributors to loan defaults (61.33%), while personal loans had the highest repayment rates (64%). Legal action was the most common strategy for reducing defaults (57.33%).
Conclusion: The study highlights significant sector-specific default rates and the predominance of legal action in recovery efforts. The findings suggest that tailored risk management strategies and improved collateral policies are necessary to mitigate loan defaults.
Future Directions:Future research should explore alternative recovery strategies, investigate sector-specific default causes, and assess the impact of economic conditions on loan repayment behaviors. Evaluating the effectiveness of different interventions could further enhance credit management practices.
