Abstract
Credit Risk management becomes major discussion issues in the financial institutions because of uncertainty related to borrower’s business. The aim of this study is to assess credit risk management tools and technique that are being used in the bank and to what extent the current performance of the bank is supported by proper credit risk management policy, procedure and strategy. The study design is descriptive. The research applies for both qualitative and quantitative research method and both primary data (questionnaire) and secondary data were collected to meet the objective of the study. 15 out of 20 total population Purposive samples were involved at Branch office using census sampling method who works on credit to get reliable and valid information about the study subject. The data was analyzed using qualitative and descriptive statistics technique and frequency table. From the findings the study concludes that the bank has well organized credit policy that counter to credit risk they are exposed to and it also conclude that the bank has good credit granting practice and uses suitable credit risk assessment tools and techniques including loan follow-up, risk identification, measuring, evaluating, monitoring and controlling mechanism. However, the study also concluded that the bank has pitfalls such as absence of training for customers which results to loan diversion, absence of credit risk model that predict the risk level of the business and the priority sectors of the bank in terms of credit facility are highly exposed to credit risk which directly contribute to the increment of NPL. Thus, it is recommended that Dashen Bank S.C should develop independent risk management policy and procedure from credit policy and procedure to overcome those problems and to take measure on the spot.
Highlights
In the past revolution period, financial sector and institutions were nationalized and consolidated in to specialized Banks
What are the polices implemented by the bank related to loans, how Dashen Bank measure its loan practice to minimize credit risk and what is the contribution of Dashen Bank in the growth of country’s economy regardless of the loan
In addition as per the interview conducted for question no 4, regarding the preventive measure Dashen Bank S.C Mettu Branch has taken an action to control or minimize the banks non-performing loan in the past, and they suggested that setting corporate targets to reduce NPLs to a single digit number, encouraging and closely following up each organ towards materialization of the target, undertaking follow up through visits and consultation, evaluation of the quality of the credit process as well as compliance with the bank’s policy and applying proper work out loan practice has done as a measure to minimize NPL in the past
Summary
In the past revolution period, financial sector and institutions were nationalized and consolidated in to specialized Banks. In any country’s economy, there will be people and institutions with surplus funds which they do not require for their immediate use and wish to place these surplus funds in an institution both for security and to gain some income by way of interest This institution would lend the money to the ultimate borrowers at an interest rate higher than what they. Bank loans fluctuate and are influenced by the changes in the economic policies and the economy in general It is very important for the banks to formulate and update their loan polices in order to minimize risk associated with them.(Dashen Bank credit follow-up procedures, 2008).This research focuses on the credit management policy and practice. What are the polices implemented by the bank related to loans, how Dashen Bank measure its loan practice to minimize credit risk and what is the contribution of Dashen Bank in the growth of country’s economy regardless of the loan
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