A study of approaches for reducing Non-Performing Loans (NPLs) of the Government Savings Bank

Abstract

This study of approaches for reducing non-performing loans (NPLs) at Government Savings Bank is prompted by the declining debt repayment capacity of borrowers, which has forced the bank to increase its provisions for doubtful accounts. The objectives were to 1) identify the causes of NPLs at the Government Savings Banks; and 2) propose effective approaches for reducing these NPLs. The findings indicate that debt repayment problems stemmed from three key factors: 1) external factors, such as rising commodity prices, higher living costs, and economic downturns; 2) internal factors, particularly high lending interest rates; and 3) borrower-related factors, including increased household expenses, reduced income, and rising debt burdens, such as informal debt. Among the three proposed approaches, the study selected the defensive (WT) strategy. This approach emphasizes reviewing and restructuring the credit analysis process to prevent new NPLs by implementing stricter and more rigorous criteria for credit assessment and loan approval that better align with borrowers’ actual repayment capacity. This strategy is highly appropriate for preventing new bad debts, focusing on enhancing   internal organizational processes to increase prudence, and mitigate credit risk, especially during periods of economic uncertainty and high – competition lending environments.