Analysis of Loan Portfolio of Rural Banks in Ghana : (A Case Study of Atwima Kwanwoma Rural Bank Limited)
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Date
2009-08-19
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Abstract
Loans are the largest asset of banks and indeed the main source of operating income to the rural banks. Banks, by regulations, make provisions for bad debts and higher provision for bad debt invariably reduces profits of banks and shareholders' wealth. Therefore, the inability of a bank to manage its loan portfolio efficiently and effectively may lead to a reduction in profit and liquidity and even the collapse of the bank. Rural banks basically give only short-term and medium-term loans. The study attempted to analyse the loan portfolio of rural banks to establish the causes of loan default and which of the two terms of loan is more prone to loan delinquency. The descriptive survey method was used to seek answers to the research questions. Structured, closed and open-ended questionnaire and interview were used to collect data for analysis. Simple random and stratified random sampling techniques were employed to select 180 loan ^defaulters and 120 non-defaulters to cover all the short-term and medium-term loan products from all the branches of Atwima Kwanwoma Rural Bank Ltd. Findings showed that the short-term loans have more loan delinquency than the medium-term loans in AKRB and causes of loan delinquency were found to be delayed approval, lack of business knowledge, decongestion exercise, insufficient amount, inadequate loan monitoring, poor weather condition, and loan diversion as well as high interest rate. It was also found out that female customers pay their loans better than the male customers. It is recommended that AKRB could recover its expired loans through loan rescheduling, refinancing, internal recovery task force and external debt recovery agencies. They should also prevent current and future loans from going bad through proper loan appraisal, monitoring and diversification of loans to reduce risks by lending to all the productive sectors.
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A thesis submitted to the College of Arts and Social Sciences, 2009