Non-Performing Loans: Perception Of Somali Bankers
Volume 1 - Issue 5, November 2017 Edition
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Author(s)
Hassan Haibe Osman, Vikneswaran
Keywords
Non-performing loans, Interest rate, Inflation rate, GDP, Credit monitoring, Political Interference, Banker’s incompetence
Abstract
Among various indicators of financial stability, banks’ non-performing loan assumes critical importance since it reflects on the asset quality, credit risk and efficiency in the allocation of resources to productive sectors. Non-performing loans has become a concerning issue for banking sector in recent times. Thusly, this study examines the perception of Somali bankers regarding the determinants of NPLs of Somali banks using primary information collected from 180 bankers working in twelve Somali banks. The researcher applied multiple regression and correlation matrix analysis aiming to find out the factors that may have an effect on the non-performing loans of Somali banks. The bankers perceive that the selected variables of this study have an effect on the NPLs of Somali banks. The empirical results of the regression and correlation analysis established strong positive and significant relationship between NPLs of Somali banks and the three variables of unemployment rate, interest rate and inflation rate. The findings also reveal that GDP has a weak but positive and significant relationship with the NPLs, whilst credit monitoring, political interference and banker’s incompetence established a weak positive and insignificant relationship with the NPLs of Somali banks. The study suggests that the bank management should increase their expenditure for training and development programmes, which would enhance the loan quality monitoring, and debt collection management of the bankers. It is also suggested to the government and regulatory bodies that the country’s unemployment rate should be kept low, extra care should be given to inflation rate and interest rate fluctuations, political interference should be limited or reduced to zero and the country’s banking sector need to be revitalised by increasing the commercial banking services capacity of the Central Bank.
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