Influence of credit risk management on non-performing loans in the Zimbabwean commercial banks

Abstract

The study analysed the influence of credit risk management on non-performing loans within commercial banks in Zimbabwe. The rate of increase in non- performing loans in commercial banks motivated the researcher to undertake the study. The objectives of the study were to examine the impact of credit risk identification on non-performing loan ratio, assess the influence of credit risk measurement on non-performing loan ratio, analyse the effect of credit risk monitoring on non-performing loan ratio and to evaluate the link between credit risk control and non-performing loan ratio of commercial banks in Zimbabwe. The study was informed by the Agency Theory and the Asymmetric Information Theory. A quantitative methodology and a deductive approach were employed in this study. The survey research design was adopted in which semi-structured questionnaires were employed as primary data collection research instruments. These questionnaires were administered to a sample of 190 bank managers who were drawn from commercial banks in Harare. Of the 190 administered questionnaires, 115 were collected and analysed. Collected data was examined through SPSS Version 20. Data reliability was tested using Cronbach’s alphas and the overall reliability coefficient of the 24 items that were employed in the questionnaire was 0.917. Descriptive statistics and simple linear regression analysis were utilised in examining the influence of credit risk management on non-performing loans of commercial banks in Zimbabwe. Findings revealed positive and significant impact of risk identification, measurement, monitoring and control on the performance of loans in commercial banks. It was concluded that credit risk management process of risk identification, measurement, monitoring and control is very crucial in enhancing positive performance of loans within commercial banks. The study recommended that bank managers should setup a CRM team drawn from all bank departments capable of identifying, measuring, monitoring and controlling diverse risks that banks face as an attempt to lower or reduce non-performing loans ratio and improve the profitability of their banks. The study focused on commercial banks only and this limited the generalisation of findings to the whole banking sector. It was proposed that future studies should explore other factors that influence loan performance in other types of banks.