Determinant of Loan Default and Its Effect on Financial Performance of Commercial Banks in Ghana. A Case Study of Fidelity Bank Limited

Research Paper (postgraduate) from the year 2015 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, , language: English, abstract: The main purpose of this study was to examine the determinants of loan default and its effects on financial performance of commercial banks in Ghana by using Fidelity Bank Limited as a case study. The study employed quantitative and qualitative research techniques as the research design. In achieving the research objectives primary and secondary data was used. The primary data was collected through a well structured questionnaire. Simple random technique was used to select 120 loan clients and a purposive sampling was used to select a credit staff. The data was collected from four branches of Fidelity Bank in the Brong Ahafo Region of Ghana. It was realized that the delays in loan approval, poor management, poor credit appraisal and diversion of loans are the main determinants of loan default in Fidelity bank. The study also found that SME clients (49.5%) defaults more than agric, personal and salary loan clients. The major cause of loan default according to the findings of this study was decrease in demand of goods and service (16.1%) sold by the loan clients. Again, it was realized that loan default has a negative impact on profitability. It is recommended that the following measures should be implemented to reduce the rate of loan default; good credit structuring, consistent monitoring, sound credit risk policies and standards, quality analysis, well trained staff, good corporate governance system, independent credit assessment, rescheduling and provision of additional funds.