Assessing the causes of loan defaults and its recovery strategies in rural banks. Case study, atwima kwanwoma rural bank

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The World Bank sponsored project that studied rural banking in Ghana presented statistics on loan default and its impact on rural banks in Ghana reported that loan delinquency and default has been a major challenge to rural banking (Nair and Fissha, 2010). Although, Loan default has been an object of research for decades, recovery strategies are yet to become an issue to receive critical attention (Ameyaw-Amankwah, 2011). No matter the level of appraisal, training and policies in place, loan default is bound to be recorded (Aremu, Suberu and Oke, 2010). The financial sustainability or profitability of banks is also dependent on the degree of loan repayment rate Quartey et al. (2019). The study sought to investigate; factors causing loan default, the characteristics of non-defaulters, the sector or area of applicants who dominate the default rate and loan recovery strategies of Atwima-Kwanwoma Rural Bank. Using a mixed method approach, the study interviewed 72clients from three branches of Atwimakwanwoma Rural Bank and 14 staff from three different branches. The study found that characteristics of non-defaulters were males, ages between 31 and 40, post-graduates, married couples, working in the service sector, with family size of two and earns between GHC 500 and 999. Also, main causes of loan default are diversion of funds, poor loans appraisal approaches, granting of multiple loans and delay in approval period. Loans granted are invested in client’s business activities which service activities dominate. The main recovery strategies adopted by the bank credit management staff are monitoring, extension of repayment period, holding guarantors accountable and confiscation of collateral. The study therefore recommended effective loan appraisal, expansion of loans to cover other sectors and focus on factors that influence clients’ repayment rate such as the fear of losing one’s social status and collateral.
A thesis submitted to the department of accounting and finance, college of humanities and social sciences in partial fulfillment of the requirements for the degree of Master of business administration (finance)