The Banking sector has a pivotal role in the development of an economy. It is the key driver of economic growth of the country. Various literature revealed that non-performing loans were one of the causes of the financial crisis in 2007. The rise in non-performing loans has been taken under consideration by many banks in the world, as banks look at different methods on how to reduce non-performing loans. The following study was carried out with the objective to analyze the impact of risk management on non-performing loans in the country and identifying different strategies used around the world that assists banks in battling non-performing loans. The study used the four major commercial banks in Namibia as samples. The study analyzed two theories Agency Theory and Credit default theory. The study used only secondary data to answer the research objectives. The limitations of the study were that the study only looked at non-performing loans of credit risks the banks face. The study was not able to use all the commercial banks as samples to gather data. The strategy of the study was an archival strategy and the study used a qualitative approach. The study found that the Namibian banks experienced an increase throughout the five years in both profits and non-performing loans. The year 2018 was the non-performing loans of the banks the highest. The study concluded that even though banks have all the risk management systems in place non-performing loans are still increasing.
Cite this paper
Maseke, B. F. and Swartz, E. M. (2021). Risk Management Impact on Non-Performing Loans and Profitability in the Namibian Banking Sector. Open Access Library Journal, 8, e6943. doi: http://dx.doi.org/10.4236/oalib.1106943.
Kiyai, T.K. (2003) Bad Debts Restructuring Techniques and Non-Performing Loans of Commercial Banks in Kenya. Doctoral Dissertation, University of Nairobi, Nairobi.
Haneef, S., Riaz, T., Ramzan, M., Rana, M.A., Hafiz, M.I. and Karim, Y. (2012) Impact of Risk Management on Non-Performing Loans and Profitability of Banking Sector of Pakistan. International Journal of Business and Social Science, 3, 307-315.
Dicevska, S., Karadjova, V. and Jolevski, L. (2018) The Impact of Non-Performing Loans on Households on the Financial Performance of Banks in Macedonia 1. International Scientific Conference on Service Sector 2018, Ohrid, 14-15 September 2018, 147-160.
Nikolaidou, E. and Vogiazas, S. (2017) Credit Risk Determinants in Sub-Saharan Banking Systems: Evidence from Five Countries and Lessons Learnt from Central East and South East European Countries. Review of Development Finance, 7, 52-63.
https://doi.org/10.1016/j.rdf.2017.01.003
Koju, L., Abbas, G. and Wang, S. (2018) Do Macroeconomic Determinants of Non-Performing Loans Vary with the Income Levels of Countries? Journal of Systems Science and Information, 6, 512-531.
https://doi.org/10.21078/JSSI-2018-512-20
Sharma, D. (2009) India’s Leapfrogging Steps from Bricks-and-Mortar to Virtual Banking: Prospects and Perils. IUP Journal of Management Research, 8, 45-61.
Shafiq, A. and Nasr, M. (2010) Risk Management Practices Followed by the Commercial Banks in Pakistan. International Review of Business Research Papers, 6, 308-325.
ÖupanoviÖ, I. (2014) Sustainable Risk Management in the Banking Sector. Journal of Central Banking Theory and Practice, 3, 81-100.
https://doi.org/10.2478/jcbtp-2014-0006
Bhatti, I. and Misman, F.N. (2010) Risks Exposure in Islamic Banks: A Case Study of Bank Islam Malaysia Berhad (BIMB). Australian Centre for Financial Studies-Finsia Banking and Finance Conference 2020, Windhoek, February 2020, 6.
https://doi.org/10.2139/ssrn.1632849
Makri, V., Tsagkanos, A. and Bellas, A. (2014) Determinants of Non-Performing Loans: The Case of Eurozone. Panoeconomicus, 61, 193-206.
https://doi.org/10.2298/PAN1402193M
Sheefeni, J.P.S. (2015) Evaluating the Impact of Bank Specific Determinants of Non-Performing Loans in Namibia. Journal of Emerging Issues in Economics, Finance, and Banking, 4, 1525-1541.
Ghosh, A. (2017) Impact of Non-Performing Loans on US Product and Labor Markets. Journal of Financial Economic Policy, 9, 302-323.
https://doi.org/10.1108/JFEP-01-2017-0003
John, N.N. (2018) Nonperforming Loans Portfolio and Its Effect on Bank Profitability in Nigeria. Independent Journal of Management & Production, 7, 303-319.
Kirui, S. (2014) The Effect of Non-Performing Loans on Profitability of Commercial Banks in Kenya. Research Submitted for Master Degree Programme, University of Nairobi, Nairobi.
Nyasaka, F.O. (2017) The Relationship between Credit Risk Management Practices and Non-Performing Loans in Kenyan Commercial Banks: A Case Study of KCB Group Limited. Doctoral Dissertation, United States International University-Africa, Nairobi.
Messai, A.S. and Jouini, F. (2013) Micro and Macro Determinants of Non-Performing Loans. International Journal of Economics and Financial Issues, 3, 852-860.
Amuakwa-Mensah, F. and Boakye-Adjei, A. (2015) Determinants of Non-Performing Loans in Ghana Banking Industry. International Journal of Computational Economics and Econometrics, 5, 35-54. https://doi.org/10.1504/IJCEE.2015.066207
Ugoani, J. (2016) Nonperforming Loans Portfolio and Its Effect on Bank Profitability in Nigeria. Independent Journal of Management & Production, 7, 303-319.
https://doi.org/10.14807/ijmp.v7i2.406
Kumar, M.M. and Kanchu, T. (2013) Risk Management in Banking Sector—An Empirical Study. International Journal of Marketing, Financial Services & Management Research, 2, 145-153.
Mwangi, A.K. (2013) Effect of Financial Innovation on the Financial Performance of Deposit Taking Microfinance Institutions in Kenya. Unpublished MBA Project, University of Nairobi, Nairobi.
Li, Y. (2007) Determinants of Banks’ Profitability and Its Implication on Risk Management Practices: Panel Evidence from the UK in the Period 1999-2006. University of Nottingham Publishers, Nottingham.
Anga, F.N. (2015) The Effect of Credit Risk Management on the Profitability of the Four Major South African Banks. University of Johannesburg, Johannesburg Press.
Makori, N.W. (2018) Credit Risk Management and Level of Non-Performing Loans in Commercial Banks in Kenya. Accounting and Finance, 2, 1306-1323.
https://doi.org/10.31142/ijtsrd14296
Bekhet, H.A. and Eletter, S.F.K. (2014) Credit Risk Assessment Model for Jordanian Commercial Banks: Neural Scoring Approach. Review of Development Finance, 4, 20-28. https://doi.org/10.1016/j.rdf.2014.03.002
Ozili, P.K. (2015) How Bank Managers Anticipate Non-Performing Loans. Evidence from Europe, US, Asia and Africa. Applied Finance and Accounting, 1, 73-80.
https://doi.org/10.11114/afa.v1i2.880
Özdemir, Ö. and Boran, L. (2004) An Empirical Investigation on Consumer Credit Default Risk (No. 2004/20). Discussion Paper, Turkish Economic Association, Ankara.
Nguyen, L. (2017) Credit Risk Control for Loan Products in Commercial Banks. Case: Bank for Investment and Development of Vietnam. Haaga-Helia University of Applied Sciences, Pajuniityntie.
Ntiamoah, E., Koranteng, E. and Brew, Y. (2014) Credit Risk Management: An Insight into Its Policies and Strategy Formulation. International Journal of Management Sciences and Business Research, 3, 55-58.
Saunders, A. and Allen, L. (2010) Credit Risk Management in and out of the Financial Crisis: New Approaches to Value at Risk and Other Paradigms. John Wiley & Sons, Inc., Hoboken.
https://doi.org/10.1002/9781118267981
Stijepovic, R. (2014) Recovery and Reduction of Non-Performing Loans—Podgorica Approach. Journal of Central Banking Theory and Practice, 3, 101-118.
https://doi.org/10.2478/jcbtp-2014-0017
Mazzù, S. and Muriana, F. (2018) A Strategic Approach to Non-Performing Loans Treatment in Banking: Options and Rules for Decision-Making. International Research Journal of Finance and Economics, 3, 51-53.
Richard, E. (2011) Factors That Cause Nonperforming Loans in Commercial Banks in Tanzia and Strategies to Resolve Them. Journal of Management Policy and Practice, 12, 50-58.
Maree, K., Creswell, J.W., Ebersöhn, L., Eloff, I., Ferreira, R., Ivankova, N., Jansen, J.D., Nieuwenhuis, J., Pietersen, J. Plano Clark, V.L. and van der Westhuizen, C. (2012) First Steps in Research. Revised Edition, Van Schaik Publishers, Hatfield.
Vosloo, J.J. (2014) A Sport Management Programme for Educator Training in Accordance with the Diverse Needs of South African Schools. Doctoral Dissertation, North-West University Press, Potchefstroom.