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How Banks Can Minimize Non-Performing Loans (NPLs)

November 21, 2017

 

 

Financial institutions around Africa experience challenges due to credit default by the borrowers. This results from poor credit management, poor management of loan portfolios and other related factors that may lead to deterioration of the quality of the bank loan book. Furthermore, unstable economic times result in higher default rate because borrowers fail to repay their loans due to shrinking purchasing power.

From a global perspective, debt accumulation in banks is also seen as a major concern. For instance, according to the International Monetary Fund (IMF) the total unpaid debts to the Chinese banks is an estimated 225 percent of its Gross Domestic Product.[1] This means that the issue of lack of loan repayments should be perceived as a growing and serious problem which has to be addressed immediately by committing to serious reforms like adapting the Debt Collection Management System.

In Kenya, some local financial institutions collapsed because of accumulation of debts by the borrowers; their failure to return the loans led to major consequences. Moreover, the Central Bank of Kenya issued Kshs 17.8 billion in form of liquidity support to failed banks in the past and this led to loss of monetary control and subsequent inflation during the period.[2] Overall, out of the Kshs 2.36 trillion gross loans there is still more than Kshs 230.6 billion that are considered to be Non-Performing Loans (NPLs).[3] This means that borrowers have failed to make scheduled payments for over 90 days since they were granted the loans.

 

Banks, therefore, have to re-assess how they can deal with the issue. For instance, NIC bank has been able to avoid and limit NPLs through acquiring the services of NLS Banking Solutions’ Debt Collection Management System. NLS Banking Solutions is the most trusted and efficient company when it comes to instilling the Debt Collection Management System among other services that financial institutions can use to improve their operations. Not only does NLS Banking Solutions deal with the bank’s debt problems, but, it also provides additional services such as Digital Payments (mobile banking, B2B Gateway, internet banking, e-billing payment system, agency banking), Biller Engine, Loan origination solutions, Reconciliation Solution (INTELLICHHECK) and many more.

At NLS we support and enhance the growth of financial institutions by providing agile solutions that allow them to deliver services faster and more consistently, with diminished worry on infrastructure failures and services outages.

 

 

 

[1]https://www.imf.org/external/pubs/ft/wp/2016/wp16203.pdf

 

 

[2]https://www.standardmedia.co.ke/business/article/2000231025/cbk-says-it-injected-sh45b-to-rescue-troubled-banks-in-2016

 

 

[3] http://www.theeastafrican.co.ke/news/Kenyan-banks-exposed-to-bad-loans-danger--IMF/2558-2613736-pglsqg/index.html

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