An evaluation of the background characteristics leading to non-performing loan or loan default among individual customers at BANCABC bank Zimbabwe limited (2012 to 2014)

Abstract

Non-Performing Loans (NPLs) has become a challenge that affected viability of many banks and economies in different nations of the world which require urgent and lasting solutions. This research gives an evaluation of the background characteristics of borrowers which lead to loan default among individual customers with BancABC Bank Zimbabwe Limited as the case. This study used the application of the logistic regression model because the binary dependent variable (loan performance) under consideration is categorical, that is, can takes only two values, such as performing or default. The empirical analysis revealed that background characteristics of loan recipients relating to age, gender, residential status and loan duration are statistically significant determinants of loan default. While other variables including number of dependents a borrower has, occupation status of the borrowers, marital status of the loan recipients and amounts borrowed by loan seekers show various levels of insignificance in the estimated model. Based on the empirical results, the researcher recommends bank officials to seriously consider, among other factors, background characteristics of individual borrowers in the form of balance score to assist in screen out bad borrowers from good borrowers so as to avoid the dire consequences of Non-Performing loans (NPLs) in terms of profitability, ability to grant more credit, liquidity crisis, investor and depositor confidence.