Factors responsible for loan default: survey of Asokore and Nwabiagya Rural Banks.
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Date
2016-08
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Publisher
KNUST
Abstract
Rural and community banks have made positive impact in the Ghanaian banking industry. They
have made impact not only in the banking sector but also in advancing credit facilities to their
clients. However, just like other financial institutions, rural and community banks experience
many cases of loan defaults which have led to the inability of the banks to increase loan advance
to clients. This study mainly focused on factors responsible for loan default in the rural banking
sector using Nwabiagya and Asokore Rural Banks as case studies. Both qualitative and
quantitative research design were adopted in the study. Questionnaires and interviews were
employed to collect data from the employees and customers of both banks. Hence, a total of
300 questionnaires were distributed but 265 of them were correctly filled and collected
indicating a response rate of 88.3%. The collected data was coded into the SPSS program and
the mean and standard deviation tests were performed and used for the final analysis. The study
found that borrowers keep on defaulting the repayment of their loans and the five main factors
responsible for loan default are government intervention like demolitions, relocation etc, and
delays in granting loans to borrowers, improper keeping of business records and diversion of
borrowed funds to risky investments once granted the loan to borrowers. It was also found that
unemployment, interest rate and inflation are the major economic factor responsible for loan
default. The study recommends to banks to liaise with the land commission and the
metropolitan assembly to ensure that the places where borrowers businesses are located have
not been assigned for any future project which will call for demolition before approving loan
for a customer. The study also recommends to banks to organise training for borrowers before
and after granting them loans.
Description
A Thesis Submitted To The Department Of Accounting And Finance In Partial Fulfilment Of The Requirements For The Degree OfMaster Of Business Administration (Finance)