Cause of Npa in Zimbabwe

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ijcrb.webs.com

NOVEMBER 2012

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

VOL 4, NO 7

Non Performing loans in Commercial Banks: A case of CBZ Bank Limited In Zimbabwe Mabvure Tendai Joseph1, Gwangwava Edson2, Faitira Manuere3, Mutibvu Clifford4, Kamoyo Michael5 1,2
Lecturers: Department of Accounting Science and Finance
Chinhoyi University of Technology
P.Bag 7724
Chinhoyi, Zimbabwe
3

Lecturer :Department of Business Management and Entprepreneurship Chinhoyi University of Technology
P.Bag 7724
Chinhoyi, Zimbabwe
4
Manager :E-Banking and Card Services
CBZ Bank limited
5

Michael Kamoyo,
Lecturer: Department of International Marketing
Chinhoyi University of Technology
P.Bag 7724
Chinhoyi
Zimbabwe
Corresponding Author
Mabvure Tendai Joseph
Abstract
The purpose of the study was to find out the causes of non -performing loans in Zimbabwe. Loans form a greater portion of the total assets in banks. These assets generate huge interest income for banks which to a large extent determines the financial performance of banks. However, some of these loans usually fall into non -performing status and adversely affect the performance of banks. In view of the critical role banks p lay in an economy, it is essential to identify problems that affect the performance of these institutions. This is because non -performing loans can affect the ability of banks to play their role in the development of the economy. A case study research design of CBZ Bank Limited was employed. Interviews and questionnaires were used to collect data for the study. The paper revealed that external factors are more prevalent in causing non performing loans in CBZ Bank Limited. The major factors causing non performing loans were natural disasters, government policy and the integrity of the borrower. Key words: Non Performing Loans, CBZ Bank limited, External factors, Internal factors

1.0 Introduction
A financial intermediary is an institution that acts as an intermediary by matching supply and demand of funds (Beck, 2001). Heffernan (1996) defines banks as intermediaries between depositors and borrowers in an economy which are distinguished from other types of financial firms by offering deposit and loan product s. Bossone (2001) agrees arguing that banks are special intermediaries because of their unique capacity to finance production by lending their own debt to agents willing to accept it and to use it as money.

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NOVEMBER 2012

VOL 4, NO 7
Commercial banks are the dominant financial institutions in most economies (Rose, 1997). Greuning and Bratanovic

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

(2003), argue that commercial banks play a critical role to emerging economies where most borrowers have no access to capital markets.

Well functioning commercial banks accelerate economic growth, while poorly

functioning commercial banks are an impediment to economic progress and aggravate poverty (Barth et.al, 2001; Khan and Senhadji, 2001) in Richard (2011).

The traditional role of a bank is lending and loans make up the bulk of their a ssets (Njanike, 2009). According to the research by Havrilesky and Boorman (1994), interest on loans contributes significantly to interest income of commercial banks. Reed and Gill (1989) pointed out that traditionally 85 percent of commercial banks‟ incom e is contributed by interest on loans. Loans therefore represent the majority of a bank‟s asserts (Saunders and Cornett, 2005). Lending is not an easy task for banks because it creates a big problem which is called non performing loans (Chhimpa J, 2002) as cited in (Upal, 2009). Due to the nature of their business, commercial banks expose themselves to the risks of default from borrowers (Waweru and Kalami, 2009).

According to Alton and Hazen (2001) non performing loans are those loans which are...
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