Credit Officers’ Perspectives On The Causes Of Non-Performing Loans: The Case Of Commercial Banks In Ghana

ABSTRACT

The case of non-performing loans has gained increased attention in recent years because of its adverse effects on banking and non-banking financial institutions and the country’s economy as a whole. Despite the various interventions implemented by the central bank to reduce this phenomenon, non-performing loans continue to grow in the books of financial institutions. The study therefore, seeks to examine credit officers’ perspectives on the causes of non-performing loans in commercial banks in Ghana. This study is an interpretative qualitative research which adopts a case study approach. The instruments used were interviews and publicly available documents. The data is analyzed using thematic analysis. The study finds that commercial banks subject loan applicants to stringent loan requirement processes to ensure that loans are given to borrowers with low default risk who have the ability to pay regularly. The study also reveals that good credit history of the loan applicant, cash flows projections and collateral security in the form of assets or a guarantor are the main factors considered in the loan acquisition process. The study also finds that several factors ranging from business and industry challenges, economic conditions, legal amendments and new regulations, inadequate collateral security are the main causes of non-performing loans in commercial banks. The study recommends that commercial banks should ensure due diligence and effective monitoring of loans granted to loan applicants. The banks should also communicate constantly with loan applicants and adjust the payment terms if they are going through any business crises that threatens their cash flows. Again, there should be proper credit referencing bureau that allows banks to share customers’ credit history among themselves.