Effect of Recoverable and Non-Recoverable Loans on Banks' Lending Behavior

FINANCE 1
Effect of recoverable loans and non recoverable loans on banks’ lending behavior
Student’s name
Tutors name
Course
Institutional affiliation
City and state
Date

FINANCE2
Abstract
The study explored the effects of recoverable loans and non-recoverable loans on the
banks’ lending behavior a case of United Kingdom. The study was built on two theories. These
theories include; the portfolio theory of lending and theory of planned behavior. The theory of
planned behavior highlighted on the intentions and attitude of customers to use loans and the
level of payments. The study took a case study of Lloyd banking group more especially the
Gresham street offices, London in UK. The study opted positivism type of research whereby it
used the descriptive research design. The study used quantitative method and the population of
the study was 100. The population of the study was comprised of four departments of the bank.
Further, the study adopted Taro Yamane’s formula to obtain the sample size of 80 respondents.
A stratified random sampling method was used. The study opted for primary data where the self-
administered questionnaires were used. Data collected was analyzed using SPSS. The study
indicated that all the questionnaires given to the respondents were returned for analysis. The
study found out that there exists moderate Banks’ lending behavior in UK. Also, the study found
out that there was positive relationship between recoverable loans and banks’ lending behavior.
However, it further showed that, there was no significant relationship between non-recoverable
loans and banks’ lending behavior after accepting the hypothesis set in the study. The study
concluded that high interest rates lead to default of loans by the customers.

FINANCE3
Table of Contents
Abstract............................................................................................................................................2
List of Tables...................................................................................................................................5
Abbreviations in the study...............................................................................................................6
Chapter One: Introduction...............................................................................................................9
1.1 Background of the study............................................................................................................9
1.2 Statement of the problem.........................................................................................................15
1.3 Aim of the study......................................................................................................................17
1.4 Objectives of the study............................................................................................................17
1.5 Research questions...................................................................................................................17
Conclusion.....................................................................................................................................17
Chapter Two: Literature Review...................................................................................................19
2.0 Introduction..............................................................................................................................19
Portfolio theory of lending......................................................................................................20
The commercial loan or the real bills doctrine theory.........................................................20
2.2 Conceptual Framework............................................................................................................21
2.3 Related studies.........................................................................................................................23
2.3.1 Banks lending behavior..................................................................................................23
2.3.2 Recoverable and non-recoverable loans.......................................................................26

FINANCE4
2.3.2.1 Non-recoverable loans and the performances of banks........................................31
2.3.2.2 Collateral securities..................................................................................................32
2.3.2.3 Current credit policy................................................................................................33
2.3.2.4 High interest rates....................................................................................................33
2.3.2.5 Loan sizes..................................................................................................................34
2.3.2.6 Credit limits..............................................................................................................34
2.3.2.7 Credit terms..............................................................................................................35
2.4 Summary.........................................................................................................................36
Chapter Three: Methodology.........................................................................................................37
3.0 Introduction..............................................................................................................................37
3.1 Research design.......................................................................................................................37
3.2 Population of the study............................................................................................................37
3.3 Technique of sampling and the sample size of the study........................................................38
3.4 Data sources and collection methods.......................................................................................40
3.5 Analysis of data in the study....................................................................................................41
3.6 Ethical considerations..............................................................................................................41
3.7 Summary of the chapter...........................................................................................................41
Chapter Four: Analysis of Data and Presentation..........................................................................43
4.0 Introduction..............................................................................................................................43
4.1 Distribution of the existing bank’s lending behavior..............................................................43

FINANCE5
4.1.1 The distribution of credit terms.....................................................................................43
4.1.2 Distribution of Credit limit as an indicator of lending behavior..........................................45
4.1.3 Distribution of credit insurance as an indicator of bank’s lending behavior........................45
4.2 Distribution of determinants of non-recoverable loans and Recoverable loans......................47
4.2.1 Distribution of the determinants of recoverable loans using summary statistics.....47
4.2.2 Distribution of the determinants of non-recoverable loans........................................47
4.3 Relationship between the kind of loans (recoverable and non-recoverable loans) and the
bank’s lending behavior.................................................................................................................48
4.4 Summary of the chapter...........................................................................................................50
Chapter Five: Summary of Findings and Conclusions..................................................................51
5.0 Introduction..............................................................................................................................51
5.1 Summary findings and conclusions.........................................................................................51
Chapter six.....................................................................................................................................53
6.0 Introduction..............................................................................................................................53
6.1 Conclusions..............................................................................................................................53
6.2 Recommendations....................................................................................................................54
6.3 Areas of further research.........................................................................................................55
6.4 Limitation of the study.............................................................................................................55
References......................................................................................................................................56
Appendices....................................................................................................................................70

FINANCE6
Appendix A: Self- Administered Questionnaire............................................................................70
B. Determinants of recoverable and non-recoverable loans..........................................................72
Appendix B: Measurements of Likert-scale average mean indices. (Sullivan & Artino, R.A.
2013)..............................................................................................................................................73
Appendix C: Computation of average mean using SPPS on lending behavior of the bank.
Retrieved from SPSS 16.0 version (Ozgur et al, 2015).................................................................74
Appendix D: Regression analysis computations (Ozgur et al, 2015)............................................75
List of Tables
Table 3.3: Respondents sampled in thestudy..........................................................38
Table4.1.1 Distribution of credit
term..............................................................................................................4
1
Table 4.1.2: Responses on credit limit..................................................................43
Table 4.1.3: Responses on credit insurance............................................................43
Table 4.1.4: Item Statistics...............................................................................44
Table 4.2.2: Responses on recoverable loans..........................................................45
Table 4.2.2: Responses on non-recoverable loans.....................................................45
Table 4.3.1 Model Summary.............................................................................46

FINANCE7
Table 4.4.2: Regression model
Coefficients.....................................................................................................4
7

FINANCE8
Abbreviations in the study
TPB Theory of Planned Behavior
TRA Theory of Reasoned Action
SPSS Statistical Package for Social Scientists
UK United Kingdom
ANOVA Analysis of Variance
SAQ Self-Administered Questionnaires
NRL Non- Recoverable Loans
RL Recoverable Loans