Causes of high default rate on loans in commercial banks: A case study of Centenary Bank LTD-Kampala Capital City

Abstract

The study examined the causes of the high loan default in Centenary bank Kampala capital City authority branches. Its objectives were to identify the bank specific factors, customer specific factor that cause default on loans payments and find out possible solutions to help reduce on the loan default rate in commercial banks. Sample sizes of 57 respondents out of a population of 120 staffs were used and it comprised of the credit staffs that included loans processors, loans officers, and credit administrators. Findings showed that the customer specific factors for loan default included, multiple borrowing, the inadequate information flow amongst the loans officers and the customers and the high rate of business failures. Bank specific factors included inadequate motivation of the credits staffs in terms of incentives, the inadequate working tools to ease loan recovery e.g the motor bikes and understaffing in the credit department. The study recommended the use of top up loans facilities instead of multiple borrowing, routine supervision and regulation of the banking activities by bank of Uganda, provision of adequate working tools to the loans officers to enhance recovery of loans and the use of existing technology platforms to keep the customers up to date of information concerning their loans.