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1.  the techniques for debt recovery in banking sector
 the process for bad debt recovery in banking sector
 the factors that account for bad loans
 Impact of bad debt to banking sector
 The recommendations that can address the issue of
bad loans in the banking sector.

2. Lending which is one of the services rendered by banks needs to be
effectively carried out by the commercial banks since it is the basis for
the establishment of sound economic development. Thus, lending must
be designed in such a way that it could be a total benefit to all different
interest group of the bank, which include the shareholders, depositors
and the borrowers.so many problems arises when these debt are not
recovered. what then should the bank do in this situation should they
stop the extension of credit to their customers so as to avoid bad debt?
Yet lending is the sources of bank profit.
Factors that account for bad loans
 lending to borrowers with questionable characters
 serial loan defaulters
 high interest rates that make it hard for some to pay
 diversion of funds by borrowers from what they had intended to work
on not being disclosed before the bank
 lack of commitment by the borrower to pay the loan
 poor planning by the borrowers of what and how they will use the loan
for which exercise and last but not least lack of collateral for the bank.

3. 'Debt Collector':
A company or agency that is in the business of recovering money that is
owed on delinquent accounts.
Debt Recovery':
A debt from a loan, credit line or accounts receivable that is recovered
either in whole or in part after it has been written off or classified as a bad
debt
Debt: This is what one owes to another person.
Loan: A Loan is a credit arrangement; a security is pledged and must be
repaid with interest over a stipulated period of time.
Overdraft: This is a credit arrangement by banks to their customer to
withdraw money over and above that what he has in the account.
Default: This means failure to pay one´s debt for credit extended which has
fallen due.
PROCESS OF DEBT RECOVERY :
 Friendly reminder
 Overdue reminder
 Final notice
 Direct contact
 Formal letter of demand

4. The need and criteria for lending have been extensively discussed in the literature
review
 U.B.S Dictionary of Banking and finance (1981) defined bank credit as the
ability to borrow money on the promise of future repayment
 The prudential guidelines (1990) succinctly convey a more comprehensive
definition of credit, it defines credit facility as the aggregate of all loans,
advances, overdrafts, commercial papers, bankers acceptances, bill
discounted, leases, guarantees and other loss contingencies connected with a
bank´s credit risks
 The term ‘’bad loans as described by Basu (1998), is used interchangeably with
non-performing and impaired loans as identified in Fofack(2005)
 Berger and De Young, (1997) also considers these types of loans as “problem
loans”. Thus these descriptions are used interchangeably through out the
study
 A critical appraisal of the foregoing definitions of bad loans points to the fact
that loans for which both principal and interest have not been paid for at least
ninety days are considered non-performing. This included loans captured
within substandard, doubtful and loss categories.Loans in these groups have
exceeded ninety days in terms of repayment(Bank of Ghana,2008).

5.  Therefore any loan that is outstanding for ninety days or more is
considered a non-performing loan. According to Berger and De Young
(1997), such loans could be injurious to thefinancial performance of
banking institutions.

6. Table: Summary of Literature Review of External Debt and Economic Growth
Relationship

7.  Pakistan’s banking sector like many other developing countries
had been faced with several problems and difficulties such as:
1. Most of the financial assets and deposits were owned by
nationalized commercial banks (NCBs) which suffered from a
highly bureaucratic approach, overstaffing, unprofitable branches
and poor customer service.
2. NCBs along with specialized banks such as ADBP, IDBP and
Development financial institutions such as NDFC had a high ratio
of non-performing loans.
3. Banking industry faced a high tax rate, which affected its
profitability and attractiveness for new entrants.
4. There was a proliferation of banks and some of them were
undercapitalized, poorly managed with a scanty distribution
network.
5. Agriculture, small and medium enterprises, Housing sectors were
underserved and the middle class and low income group had
limited access to bank credit.

8. In this report secondary data have been used. Secondary data is gathered
from journal articles and electronic media. The annual financial
information extracted from selected financial institution web site.
Research Design
The researcher adopted exploratory and explanatory approaches
 Exploratory was used to help the researcher find out more about the
problem of bad loans,especially the adverse effects of these loans on bank
performance as well as factors that lead to bad loans
 Robson (2002), cited in Saunders et. al (2007),described exploratory study
as a valuable means of finding out what is happening in order to seek
new insights, to ask questions and assess phenomenon in a new situation
 Explanatory study approach was employed to establish how bad loans
impact on bank performance and also to show how the loan making
procedures and rules, as well as other factors can result in bad loans.

9.  Saunders et al (2007) indicated that explanatory studies establish the
causal relationship between variables. For example this approach
established the link between charge for bad loans and the profitability of
the bank
Data Collection
 The secondary data were sourced from the published annual reports and
financial statements of the bank.
 The information covered a period of five years from 2003 to 2007. This
category of data was mainly in quantitative form
 Access to the data was not a problem as these were published annually in
the print and electronic media for public consumption.
 The researcher benefited in so many ways from the use of this type of
information for the study.
 First, this was less expensive to collect, in terms of time and money. It
afforded the researcher the opportunity to collect high quality data which
would not have been of the same quality if the researcher were to collect
it in its primary form

10.  Saunders et al,(2007) quote Stewart and Kamins (1993) as stating that
secondary data are likely to be of higher-quality than could be
obtained by collecting empirical data.The data collected contained the
main information needed to answer the research questions like loan
portfolio of the bank, provisions and charge for bad loans and
profitability during the five year period.
Impact of bad debt in banking sector:
Bad Debts usually have a negative effect on a banks balance sheet
and profitability. Bad Debt stands for loans that are granted to
customers who would not repay them back. These are losses for
the bank and hence all this money features as loss in the banks
accounts which in turn reduces the banks profitability. The effect
of the bad debts is worse by rising energy and commodity prices
which push up inflation in country.

11.  It is found that many problems arise due to
bad debts but the bank cannot stop this lending
practice as it is the source of profit for any
bank.so the bank should seek strategies to
avoid any bad debts or to recover debts easily
from customers.

12.  Banks should have good quality risk analysis, effective
credit control and close supervision of disbursement
and the up to date knowledge of the borrowers
activities and adequate care should be taken to ensure
that the collateral is marketable and should be freed
from any encumbrance.
 Banks should improve in house credit assessments and
appraisals
 Lawyers should be carefully selected for their expertise
and professionalism in debt recoveries.
 It is also important to encourage the establishment of
debt factors, who will be given special statutory and
judicial recognition and for a fee would buy up existing
debts and obligations arising from commercial
transactions.