An Examination of the Challenges of Loan Recovery in Retail Banking: A Case Study of First Bank, Kaduna State
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Background of the Study
Loan recovery is a critical function within retail banking that directly impacts a bank’s profitability and risk management. First Bank in Kaduna State faces the dual challenge of extending credit to promote growth while ensuring that loans are repaid in a timely manner. Effective loan recovery processes are essential for minimizing non-performing assets and maintaining financial stability. The bank employs a range of strategies, including collateral requirements, legal proceedings, and customer engagement initiatives, to recover defaulted loans (Okafor, 2023).
Recent technological advancements have allowed for more efficient monitoring of loan performance through digital tracking systems and data analytics. However, persistent challenges such as economic downturns, borrower financial mismanagement, and inadequate credit assessments continue to impede successful loan recovery. The complex socio-economic environment in Kaduna State further complicates recovery efforts, as many borrowers face difficulties due to fluctuating incomes and market volatility (Chinwe, 2024).
In response, First Bank has refined its recovery mechanisms by implementing robust risk assessment models and investing in customer relationship management tools to better monitor repayment behaviors. These initiatives are aimed at improving communication with defaulters and negotiating manageable repayment plans. Nonetheless, the effectiveness of these measures is variable, and gaps remain in the loan recovery process that affect the bank’s overall credit portfolio performance. This study examines the challenges associated with loan recovery at First Bank, assessing the operational and external factors that contribute to defaults and proposing strategies for improvement (Akinola, 2025).
Statement of the Problem
Despite proactive measures, First Bank continues to encounter significant challenges in loan recovery. High default rates, exacerbated by economic instability and borrower mismanagement, have led to increased non-performing loans and financial losses (Okafor, 2023). Inadequate initial credit assessment and poor risk profiling have been identified as key factors that contribute to the difficulty in recovering loans. Additionally, the loan recovery process is often hampered by lengthy legal procedures and ineffective communication channels, which delay the resolution of default cases.
Furthermore, many borrowers in Kaduna State face structural challenges such as unstable income sources and limited access to financial education, making timely repayments difficult. These issues are compounded by a lack of tailored recovery strategies that consider the unique socio-economic circumstances of borrowers. The existing recovery mechanisms, while robust on paper, are not fully effective in practice, leading to a persistent gap between expected and actual recovery rates. This study aims to identify these challenges, evaluate their impact on the bank’s financial performance, and propose targeted interventions to enhance the efficiency and effectiveness of the loan recovery process (Chinwe, 2024).
Objectives of the Study
- To assess the challenges affecting loan recovery at First Bank.
- To evaluate the effectiveness of current loan recovery strategies.
- To recommend improvements for enhancing loan recovery processes.
Research Questions
- What are the primary challenges that hinder effective loan recovery at First Bank?
- How effective are the current recovery strategies in reducing non-performing loans?
- What measures can be implemented to improve the loan recovery process?
Research Hypotheses
- H₁: Inadequate risk assessment is significantly associated with higher loan default rates.
- H₂: Streamlined legal and recovery processes improve loan recovery outcomes.
- H₃: Enhanced borrower communication reduces the incidence of non-performing loans.
Scope and Limitations of the Study
This study focuses on the loan recovery practices of First Bank in Kaduna State. Limitations include potential difficulties in obtaining detailed recovery data, variability in borrower profiles, and external economic influences.
Definitions of Terms
- Loan Recovery: The process of retrieving funds from defaulted loans.
- Non-Performing Loans: Loans on which the borrower is not making interest or principal payments as scheduled.
- Credit Risk Assessment: The evaluation of the risk associated with lending to a particular borrower.
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