Assessment of customer business characteristics on loan defaults in financial institutions

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November, 2015
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The main objective of this thesis is to identify the customer business characteristics in relation to loan defaults at First Allied Savings & Loans Limited. Other purposes meant for the study include factors contributing to loan defaults, measures put in place by First Allied Savings and Loans Limited in reducing loan defaults and the trend of loan defaults in the last six years. The objectives were achieved through field survey using questionnaires and interviews by convenient and purposive sampling method to elicit information. The research had certain findings of which these are prominent. It was observed that high interest rate and fees accounted for the default of loans by customers. Loan officers also reneged on their ability to do due diligence on the facilities as stipulated in the credit manual. Some customers also divert the loan amount to acquire assets rather than what the amount is intended for. In conclusion, loan default is caused by the customers themselves, the financial institution which is lending and also external factors such as delay in release of contractor’s funds for government projects, fire outbreak, decongestion etc. This affects the institution as it decreases its profit margin and impinges on its operational sustainability and viability. It is recommended that when screening clients for loans, Customer’s character, capacity, capital, collateral and conditions under which loans are given should be thoroughly examined and also loan amount should not be diverted by customers to acquire assets and also interest rates which are normally high should be reduced.
A thesis submitted to the Department of Marketing & Corporate Strategy, KNUST School of Business, Kwame Nkrumah University of Science & Technology in partial fulfillment of the requirements for the award of the degree of Master of Business Administration.