The effects of non-performing loans on the financial performance of banks: a case of POSB 2012-2014.

Abstract

The study’s intention was to investigate how non-performing loans were affecting the operational performance of POSB. The problem under study was the effects of NPLs on the financial performance for POSB. It revealed that, the upward trend in non-performing loans in most banks is a cause for concern since it has resulted in recent bank failures. The objectives were the causes of NPLs at POSB, the effects of NPLs on the financial performance, the relationship between NPLS and performance measures, the effect of credit risk management procedure on NPLs and measures to reduce NPLs. The concept of NPLs was examined by looking at the existing literature from previous scholars and authors who carried researches on NPLs. A descriptive case study research design was used and data was gathered through the use of structured questionnaires and interviews. From the findings, non performing loans have effect on the profitability, interest income and liquidity of POSB and a system of strong controls can help ensure and improve the operational performance and creation of credit reference bureau can reduce non-performing loans. The bank should implement a policy of pledging assets for collateral as well as use of third party credit guarantor on dealing with these default loans.