An Investigation of Strategies Implemented to Reduce Default Rates in Loan Lending Institutions ( A Survey of Equity Bank Nyeri County)
Macharia, Francis Gakuu
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Lending is the principal business activity for most commercial banks. The loan portfolio is typically the largest asset and the predominate source of revenue. Traditional practices rely too much on trailing indicators of credit quality such as delinquency, nonaccrual, and risk rating trends. Banks have found that these indicators do not provide sufficient lead time for corrective action when there is a systemic increase in risk. At Equity Bank, Nyeri County, management has done all that is within its means to ensure that the clients get credit facilities at ease. However, there have been numerous cases of loan defaulters at the bank. Consequently, this has led to losses in terms of profits to the bank and also provisions in the bank have increased. This study was undertaken to determine strategies to reduce default rates in loan lending institutions in Kenya. The base of the study was Equity Bank, Nyeri County. The objectives of the study were to establish the effect of client account appraisal, collateral appraisal, client loan history and, guarantors’ appraisal on loan repayment at the Equity Bank, Nyeri County. The study reviewed literatures in line with the area of study. The study will employed a case study research design so as to carry out an in depth study of the organization in order to come up with the relevant data for analysis. This method was the best suited to systematically give an exhaustive analysis of the situation. The study targeted forty one respondents who are employees of the Equity Bank, Nyeri County. Questionnaires were used as the main tools for the collection of data. Both qualitative and quantitative methods of data analysis will be used in data analysis. On account transactions appraisals on loan repayment at Equity Bank, the study found that majority (52.5%) of the study participants felt that account transaction appraisals were slightly high. On the implications of collateral appraisal on loan repayment, the study found that most (37.5%) of the respondents felt that the collateral appraisals of Equity bank were high. On the role of client’s loan history appraisals on loan repayment, the study found that most (42.5%) of the study participants felt that the loan history appraisals were very high. On the influences of guarantors’ appraisals on loan repayment majority (50%) of the study participants felt that the guarantors’ appraisals at Equity bank were high.The study concluded that the account transaction appraisals, collateral appraisals, loan history appraisals as well as guarantor appraisals were tailored to meet attract borrowing in Equity. Among others, the study also recommended that the banks should tailor their appraisals to cover the institution’s risk while at the same time attract more borrowers. It was hoped that the findings would be of significance to various loan applicants and management of Equity Bank. By determining factors affecting on the Loan accessibility of entrepreneurs, it would add value to the organization.