Management of credit default risk in commercial Banks: The study of national microfinance bank (NMB) Mwanza region

Abstract

The overall objective of this study is to identify, measure as well examining the underlying root causes of Default Risks in Commercial Banks, challenges faced, and offer recommendations on what should be done to improve the management of credit risk in the Bank. The study applied survey method which combined both qualitative and quantitative approaches as a way to investigate both quantitative and qualitative information on the study topic. The results have shown that, of the major challenges faced by Bank is lack of credit reference bureau which accounts to almost 50% of all challenges. Other challenges include lack of enough expertise as well as fraud and fraudulent practices. It was an assumption of the researcher that, the tendency of NMB posing higher interest rates ranging 18% to 21% results into very expensive loans for borrowers to repay. This was found to be the only case with business loans which cannot generate enough cash flows to service both principal and interest timely. At the end of the study the author tries to propose a few issues which she believes can make a remarkable impact on management of credit risk. Some of her strong recommendations include the need to continue lobbying to the Government to speed up the establishment of Credit Reference Bureau. The researcher also suggests that the bank also needs to diversify its activities geographically to reduce its amount of concentration in Dar es Salaam. The author believes that all of her recommendations can be taken up and implemented with the given resources the bank posses, the study shall remain as one of the key reference documents for policy makers, corporate firms, students and employees of NMB