An investigation of the causes and possible solutions to non-performing loans in Zimbabwe's banking sector (February 2009 to May 2014)

Abstract

Credit Services is one of the strategic departments in banking where most revenue is generated. However, it has its own challenges, chief among them non-performing loans. The main purpose of this research was to find out the causes and offer possible solutions to non-performing loans in Zimbabwe in the period February 2009 to May 2014. The study adopted a positivist research philosophy and quantitative research approach with the survey strategy as the research design. Employees of selected banks in Harare constituted the population of the research. Stratified and random sampling was used to select the banks and employees respectively. Self-administered questionnaires were utilised to collect information in this study. The research results revealed that the major causes of non-performing loans in Zimbabwe are company failures, high imports, poor repayment collection methods, insider loans, high interest rates, poor management and poor credit assessments. The research supported the operative hypotheses that: GDP growth, high interest rate, unemployment rate and diversion of funds have a positive relationship with non-performing loans. The research did not support two hypotheses found in the literature which are that poor management and insider lending have a negative relationship with non-performing loans. The research findings show that several methods are used in Zimbabwe to manage non-performing loans and these are the use of debt collectors, information sharing, strict screening of applicants and close monitoring of the loan book. The research recommends that government should provide special dispensation for bad debt cases to get priority in the courts of law and more judges must be allocated to sections dealing with bad debts. In addition government should facilitate the creation of asset management companies that specifically deal with bad debts in Zimbabwe’s financial services sector. The research recommends that the best strategy to reduce non-performing loans is avoidance of sub-standard loans caused by poor credit assessment and poor monitoring of the loan book.