Loan Terms and Loan Default in Orient Bank Limited in Kampala Central Division Uganda

ABSTRACT The study centred on Loan Terms and Loan Default in Orient Bank Limited Kampala Central Division-Uganda. The study was guided by four objectives which included determining;- (i) the demographic profile of the respondents, (ii) Level of Loan terms (iii) levels of Loan default and (iv) significant relationship between the extent of Loan default and levels of loan terms in Orient Bank Limited. Researcher made questionnaire was used to collect data from 200 respondents selected purposively~ A descriptive corelational, cross-sectional and expost-facto design were used. Data analysis was done using frequencies; percentages, means, and Pearson linear correlation coefficiency (PLCC) were used to analyze data. The findings indicated that most respondents were female (56.4%), mostly (55.9%) were below 30 year of age; had Bachelor holder dominated the study (39.6%), on permanent basis (53.1%), financial advisors (16.S%), had atleast spent between 2 -10 years and majority were married (53.1%). All aspects of loan terms were found to be high with overall (mean= 4.05). All aspects of loan terms were found to be positively and significantly correlated with loan default for example Loan period (r=0.270, sig=0.000), Collection procedures (r=0.609, sig=0.000), Loan limits(r=0.211, sig=0.000. The researcher recommended that; board should computerize its management information system and build staff capacity in computer applications, intensify recovery of outstanding balances from defaulters through increased borrower follow-up, revise borrower appraisal instrument, determine how much debt the borrower can handle comfortably, his or her income streams, and any other obligations that might interfere with repayment, improve the understanding of both staff and clients on the importance of recovery of loans effective and efficient training both on and off job for all staff, to ensure that they don’t only understand how to give out loans and monitor them but also such that they can be able to interpret the figures in the financial and operational reports of the bank; evaluating how much they should , take legal actions against fraudulent loan officers and defaulter borrower; make borrowing less expensive by lowering or eliminating origination fees link financial aid with early guidance and mentoring, ensure uniformity in lending practices through the formulation of a formal lending policy which can be reviewed periodically as warranted by changing economic conditions, ensure that advances given to their clients are used for approved purposes and that the client repays back on time makes a deep analysis of the customer’s financial statements of the past, present and projected financial statements, that collateral security presented are safe and easily marketable and once the above aspects are attended to, the Loan terms are very useful vice in reducing loan default in Orient Bank limited.