ABSTRACT

This study investigates the determinants of non-performing loans (NPLs) in NFC Bank Buea, Cameroon. Non-performing loans are a significant issue for financial institutions, impacting their profitability and operational stability. The research aims to identify the key factors that contribute to the rise of NPLs at NFC Bank, focusing on internal bank practices, borrower characteristics, and external economic conditions. By understanding these determinants, the study provides insights into how the bank can improve its credit risk management and reduce its NPL ratios.

A mixed-method approach was employed, combining qualitative interviews with NFC Bank’s loan officers and risk managers and quantitative analysis of the bank’s loan portfolio over a five-year period. Key variables examined include borrower income levels, loan types, interest rates, economic trends, and NFC Bank’s credit approval process. Relevant literature on non-performing loans and credit risk management in the banking sector was also reviewed to provide a comprehensive understanding of NPL determinants.

The findings reveal that the primary determinants of NPLs at NFC Bank Buea include poor credit risk assessment, lack of borrower financial literacy, and fluctuating economic conditions such as inflation and unemployment. Weak loan monitoring and enforcement mechanisms also contribute to the increase in non-performing loans. Additionally, external factors like economic downturns and sudden changes in market conditions play a significant role in loan defaults.

The study concludes that NFC Bank can reduce its non-performing loans by strengthening its credit risk assessment procedures, offering financial education to borrowers, and improving its loan monitoring practices. Furthermore, adapting to external economic conditions through flexible loan terms and better risk forecasting can help the bank minimize loan defaults and maintain financial stability.

Keywords: non-performing loans, NFC Bank, Buea, credit risk, borrower characteristics, economic conditions, loan monitoring, financial stability, Cameroon.