Journal of Emerging Trends in Economics and Management Sciences (JETEMS) 3(6): 882-886 © Scholarlink Research Institute Journals, 2012 (ISSN: 2141-7024 jetems.scholarlinkresearch.org Economics and Management Sciences (JETEMS) 3(6):882-886 (ISSN:2141-7024) Journal of Emerging Trends in
Insights on Non-Performing Loans: Evidence from Zimbabwean Commercial Banks in a Dollarised Environment (2009-2012) 1
Laurine Chikoko, 2Tendekayi Mutambanadzo and 3Takaiona Vhimisai 1
Department of Banking and Finance, Midlands State University, P Bag 9055, Senga, Gweru. 2 Department of Banking, National University of Science and Technology P O Box AC939, Ascot Bulawayo. 3 Department of Banking, National University of Science and Technology P O Box AC939, Ascot Bulawayo. Corresponding Author: Laurine Chikoko ___________________________________________________________________________ Abstract This study was prompted by the gradual deterioration in asset quality in most commercial banks in Zimbabwe after the adoption of the multiple currency exchange rate regime. The poor asset qualities were reflected by the non-performing loans trending towards the watch list category. In this regard we investigated the commercial bank credit process with the objective of understanding the fundamental causes of the impaired assets that are bedeviling the Zimbabwean banking sector so that some of the mistakes are not repeated and correctional measures are put in place. The methodology adopted a survey research design with use of questionnaires and interviews with commercial banks head credit risk, head retail and head corporate banking division from 15 registered commercial banks in Zimbabwe. Research findings show that some banks were sitting on nonperforming loans due to poor credit analysis processes; wrong products offered to the clients; lending based on balance sheet strength instead of cash flow based lending; banks taking too much comfort in security; information asymmetry leading to moral hazard; economic environment and political influence. Key recommendations include an urgent setting up of the Credit Bureau; banks should not adjust clients request and the need for banks to consider the economic environment and adjust their credit culture. The central bank needs to tighten its supervisory role and ensure prudential guidelines are not violated. _________________________________________________________________________________________ Keywords: credit analysis, loan products, non-performing loans, Zimbabwean commercial banks, dollarised environment. __________________________________________________________________________________________ INTRODUCTION the watch list category. The implication is that Zimbabwe adopted a multiple currency regime in borrowers were struggling to repay loans leading to 2009. A multiple currency system allowed trade to be the problem of banks sitting on non-performing conducted using major trading currencies, for loans. example, the United States Dollar (USD), Pound Sterling, South African Rand, and the Botswana Pula. Each non-performing loan in the financial sector is After the adoption of the multiple currency system, viewed as an obverse mirror image of an ailing the banking sector experienced marked unprofitable enterprise. From this point of view, the improvements in the intermediary role which resulted eradication of non-performing loans is a necessary in improved financial support to the key productive condition to improve the economic status of the sectors of the economy (Reserve Bank of Zimbabwe financial institution. Continuously rolling over non(RBZ), 2010). A research conducted by the performing loans locks up resources that could International Monetary Fund in 2010, indicated that otherwise be invested to profitable sectors of the the profitability of banks had improved following a economy. Intuitively this hinders economic growth more favourable economic environment during the and impairs economic...
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