Bad loans portfolio: the case of ADB

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Lending is a principal business activity for banks. Loan portfolio therefore form a substantial amount of the assets of banks because it is the predominate source of interest income. However, when loans go bad, they tend to have some serious effects on the financial health of banks through provisions for bad debts, in line with banking regulations. In view of the critical role banks play in the economy of a country, it is worth finding out the impact of bad loans on financial performance of bank. The study was carried out to establish the impact of bad loans on the financial performance of banks, focusing on the ADB. It specifically focused on the effect of bad loans on loan interest income, profits and lending. The study also looked at the trend of bad loans during the five-year period under review and the factors that account for bad loans. Primary and secondary data were used in the study. The findings showed that the bank recorded huge amount of bad loans during the period under consideration. It was established that these provisions negatively impacted on the financial performance of the bank through reduction in loan interest income, profits and lending funds. The study identified ineffective loan monitoring and poor credit vetting as the major factors accounting for bad loans. To improve on the quality of the bank’s loan portfolio, some measures have been recommended to management of the bank. These are credit training programme, effective loan monitoring, and adequate collateral, establishment of agriculture infrastructural facilities and use of credit bureaus.
A Thesis submitted to the Institute of Distance Learning, Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirements of the degree of Commonwealth Executive Masters in Business Administration (CEMBA)