Problems facing Commercial banks in Developing countries
- Unfavorable government policies in form of fixing high interest rates. This discourages individuals from borrowing money from commercial banks.
- High levels of economic instabilities. For example inflation, exchange rate fluctuations etc. Inflation discourages savings due to loss of the real value of money hence limiting bank deposits.
- Low levels of technology in developing countries. There is existence poor technology in developing countries and it is expensive to import modern equipments from developed countries. This increases the cost of operation by commercial banks.
- Poor and inadequate infrastructural facilities. This is reflected in form poor transport network like inaccessible roads, insufficient power supply, unreliable telecommunication network etc. This makes it difficult to market financial services especially in rural areas.
- Limited skilled manpower in developing countries. Labour in developing countries lacks the necessary skills required to operate and manage banking activities. This leads to mismanagement of funds. Some banks are forced to import skilled manpower from abroad which is expensive.
- High levels of political instability in developing countries. This makes it difficult to open up more branches especially in rural areas due to fear of losing life and making losses.
- High levels of poverty among the customers. In developing countries, many customers are poor and scattered. Therefore commercial banks face the challenge of mobilizing savings.
- Limited number of credit worthy customers. This limits lending by commercial banks due to lack of collateral securities by most borrowers.
- High levels of illiteracy among customers. Most of the customers are illiterates due to low levels of education. In addition, many customers do not keep books of accounts. Therefore it becomes difficult to assess their credit worthiness.
- High level of competition in the banking sector. Most of the banks are concentrated in urban areas. Therefore, they are faced with the problem of competition for the limited customers.
- High levels of corruption and embezzlement of funds. There is a high degree of corruption and embezzlement of bank funds by bank officials. This limits the expansion of the banking sector.
- The existence of a large subsistence sector. This leads to low savings due to low incomes as a result of low levels of economic activity.
- The general negative attitude by the public about banking in developing countries. Many individuals do not have trust in commercial banks and therefore, they get scared of leaving their savings with banks. Some individuals prefer to keep their money at home.
CATEGORIES Economics
TAGS Dr. Bbosa Science
