ABSTRACT

This study examines the effects of non-performing loans (NPLs) on private commercial banks in Cameroon. Non-performing loans, defined as loans in default or close to default, pose a significant challenge to the banking sector by affecting liquidity, profitability, and overall financial stability. The research investigates how NPLs impact the operational efficiency and financial performance of private commercial banks in Cameroon, focusing on their loan recovery strategies, risk management practices, and regulatory responses.

A mixed-method approach was used, incorporating both qualitative and quantitative data. Interviews were conducted with bank managers, loan officers, and risk analysts in private commercial banks to understand the causes of rising NPLs and the strategies employed to mitigate their effects. Quantitative data was collected from financial reports of selected banks, analyzing NPL ratios, profitability indicators, and loan recovery rates over the past five years. The study also reviewed relevant literature on NPL management in the banking sector, particularly in African economies.

Findings indicate that non-performing loans significantly reduce profitability in private commercial banks, as resources are diverted to manage bad debts. High NPL ratios lead to reduced lending capacity, increased provisioning for loan losses, and heightened risk exposure. Furthermore, NPLs negatively affect customer confidence and may trigger tighter lending conditions, which can stifle economic growth. The study also reveals that while some banks have implemented effective loan recovery measures, weak legal frameworks and enforcement mechanisms in Cameroon hinder the timely resolution of non-performing loans.

The study concludes that addressing the issue of NPLs requires a multi-faceted approach. Recommendations include strengthening loan approval processes, improving credit risk assessment, enhancing regulatory oversight, and revising legal frameworks to ensure more efficient loan recovery. By implementing these strategies, private commercial banks in Cameroon can mitigate the adverse effects of non-performing loans and maintain financial stability.

Keywords: non-performing loans, private commercial banks, Cameroon, financial performance, loan recovery, risk management, profitability, regulatory oversight, banking sector.