Determinant of Loan Default and Its Effect on Financial Performance of Commercial Banks in Ghana. A Case Study of Fidelity Bank Limited

Case Study , 2015 , 51 Pages

Business economics - Banking, Stock Exchanges, Insurance, Accounting

The main purpose of this study was to examine the determinants of loan default and its effects on financial performance of commercial banks in Ghana by using Fidelity Bank Limited as a case study. The study employed quantitative and qualitative research techniques as the research design. In achieving the research objectives primary and secondary data was used. The primary data was collected through a well structured questionnaire. Simple random technique was used to select 120 loan clients and a purposive sampling was used to select a credit staff. The data was collected from four branches of Fidelity Bank in the Brong Ahafo Region of Ghana. It was realized that the delays in loan approval, poor management, poor credit appraisal and diversion of loans are the main determinants of loan default in Fidelity bank. The study also found that SME clients (49.5%) defaults more than agric, personal and salary loan clients. The major cause of loan default according to the findings of this study was decrease in demand of goods and service (16.1%) sold by the loan clients. Again, it was realized that loan default has a negative impact on profitability. It is recommended that the following measures should be implemented to reduce the rate of loan default; good credit structuring, consistent monitoring, sound credit risk policies and standards, quality analysis, well trained staff, good corporate governance system, independent credit assessment, rescheduling and provision of additional funds.

Inhaltsverzeichnis (Table of Contents)

• INTRODUCTION
• 1.0 Background to the Study
• 1.1 Statement of Problem
• 1.2 Objectives of the Study
• 1.3 Research Questions
• 1.4 Justification of the Study
• 1.5 Scope of the Study
• 1.6 Limitation of the Research
• 1.7 Organization of the Study
• LITERATURE REVIEW
• 2.0 Introduction
• 2.1 Conceptual Issues
• 2.1.1 Lending
• 2.2 Loan Default
• 2.2.1 Determinants of Loan Default
• 2.2.2 Minimizing Loan Default
• 2.2.2.1 Collateral
• 2.2.2.2 Credit Securitization
• 2.2.2.3 Compliance to Basel Accords
• 2.2.2.4 Adoption of a sound internal lending policy
• 2.2.2.5 Asset-by-asset Approach
• 2.2.2.6 Portfolio Approach
• 2.2.2.7 Credit Scoring Systems
• 2.3 Effect of Loan Default
• 2.4 Loan Repayment
• 2.5 Credit Risk
• 2.5.1 Sources of Credit Risk
• 2.5.2 Importance of Credit Risk
• 2.6 Credit Risk Assessment
• 2.7 Review of Theories
• 2.7.1 Liquidity Theory of Credit
• 2.7.2 Portfolio Theory
• 2.7.3 Credit Risk Theory
• 2.7.4 Tax Theory of Credit
• 2.8 Conceptual Framework
• METHODOLOGY
• 3.0 Introduction
• 3.1 Research Design
• 3.2 Population and Sampling Technique
• 3.3 Data Collection
• 3.3.1 Primary Data
• 3.3.2 Secondary Data
• 3.4 Data Analysis
• 3.5 Model Specification and Estimation Technique
• 3.6 Profile of Organization
• ANALYSIS OF DATA AND PRESENTATION OF RESULTS
• 4.0 Introduction
• 4.1 Demographic Characteristics of Respondents
• 4.2 Determinants of Loan Default in Fidelity Bank
• 4.3 Type of Client who normally default in Fidelity Bank
• 4.4 Causes of Loan Default
• 4.5 Impact of Loan Default on Profitability
• 4.6 Rate of Default in relation to sectors of the economy
• SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
• 5.0 Introduction
• 5.1 Summary of Findings
• 5.2 Conclusions

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This study aims to investigate the factors contributing to loan default and its impact on the financial performance of commercial banks in Ghana, using Fidelity Bank Limited as a case study. The study utilizes both quantitative and qualitative research methods to achieve its objectives. The key themes explored in this research are:
• Determinants of loan default in commercial banks
• The impact of loan default on bank profitability
• The effectiveness of different strategies to minimize loan default
• The role of credit risk management in mitigating loan default
• The relationship between loan default and various sectors of the economy

Zusammenfassung der Kapitel (Chapter Summaries)

• Introduction: This chapter sets the stage for the study by providing background information on the context of loan default in Ghana's commercial banking sector. It outlines the research problem, objectives, research questions, justification, scope, limitations, and organization of the study.
• Literature Review: This chapter delves into the theoretical and empirical literature related to loan default, credit risk, and the financial performance of banks. It discusses the conceptual framework of lending and loan default, explores various determinants of loan default, examines strategies for minimizing default, and reviews relevant theories of credit risk.
• Methodology: This chapter describes the research design, population and sampling techniques, data collection methods (primary and secondary data), data analysis techniques, and the model specification used in the study. It also provides a profile of Fidelity Bank Limited.
• Analysis of Data and Presentation of Results: This chapter presents the findings of the study, analyzing the demographic characteristics of respondents, identifying the determinants of loan default in Fidelity Bank, exploring the types of clients prone to default, examining the causes of default, and assessing the impact of loan default on profitability. It also analyzes the rate of default in relation to different sectors of the economy.
• Summary of Findings, Conclusions and Recommendations: This chapter summarizes the key findings of the study, draws conclusions based on the analysis, and provides recommendations for mitigating loan default and improving the financial performance of commercial banks in Ghana.

Schlüsselwörter (Keywords)

The study focuses on the key concepts of loan default, financial performance, credit risk, and credit risk management. It examines the impact of loan default on the profitability of commercial banks in Ghana, exploring various determinants of default and strategies for its mitigation. The research also investigates the relationship between loan default and different sectors of the economy, highlighting the importance of effective credit risk management practices in ensuring the stability and sustainability of the banking sector.

• Authors: Anthony Abaidoo (Author), Shadrach Oppong (Author)
• Publication Year: 2015
• Pages: 51
• Catalog Number: V373126
• ISBN (eBook): 9783668580220
• ISBN (Book): 9783668580237
• Language: English
• Tags: determinant, loan, default, effect, financial, performance, commercial, banks, ghana, case, study, fidelity, bank, limited