Determinants of loan default in UT Bank

Abstract

Banks play very significant task in the fiscal life of every country. A strong and stable financial system, underpinned by sound macroeconomic management and prudential regulation, is an essential ingredient for sustained growth. A bank is a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets. The main objective of this study is to identify the determinants of loan default using UT Bank as a case study. The design of the study will be a cross-sectional survey design using the qualitative approach. From the results, it was clear that, the major cause of default associated with Business Loans, Auto Loans and Salaried Loans are divergence of loans and delays in funds payments, inadequate income from repayment source and multiple loan obligations respectively. Again, the study showed that, Construction is the industry of the Business Loan portfolio that has the highest default rate. In relation to Auto Loan, the Private Individuals sector is the category of product that has the highest default rate and the Private Services sector is the category of the Salaried Loan portfolio which has the highest default rate. Business Loan however has the highest default rate among the three loan products. It was also observed that the reasons why the clients find it difficult to repay loan is because of the high interest rate, loss of job, accident car and bankruptcy.