Social capital, interaction quality and performance of loans in commercial banks
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When a bank grants a loan, it takes the risk that the borrower will not honour his debt hence the accumulation of non-performing loans. Loan officers have to transform a pure professional interaction into an informal and friendly interaction with customers. A social and emotional proximity between the loan officer and the borrower can lead the banker to gain better understanding of the specificities of her client’s business and movements. The purpose of this study was to analyze the relationship between social capital, interaction quality, credit risk assessment and loan performance in commercial banks. This was prompted by the observation that traditional loan evaluation criteria based on capacity, capital, collateral, character, conditions, and control that commercial credit loan officers go through to assess the creditworthiness of borrowers seem not to be sufficient enough to address the persistent problem of the poor performance of loans in commercial banks. The study was descriptive and analytical, and used a cross sectional survey guided by six objectives. A questionnaire was designed and administered to the bank loan officers of fourteen commercial banks. The collected data was analyzed using both qualitative and quantitative techniques of analysis. The results showed that there is a positive and significant relationship between social capital, interaction quality, credit risk assessment and loan performance. Further, social capital is a better predictor of the loan performance variable than interaction quality and credit risk assessment. The researcher recommends commercial banks to provide an environment that supports continuous social capital growth and interaction of customers with the employees. Managers are advised to introduce training that increases social capital, interaction quality and effective mechanisms of credit risk assessment.