Credit Risk Management Techniques Research Articles

Influence Between Bank Spread Rate and NPA

This research aimed to determine how interest rate dispersion affects the quantity of bad loans at Indian financial institutions. The research strategy used in this analysis of Indian Bank data was descriptive in nature. The Bank Supervision Report was employed as a secondary source for this study’s data collection. The correlation between interest rate spread and loan default was investigated using quantitative and qualitative methods of data analysis. Charts, tables, and pie diagrams were used to illustrate the information. The research found that the cost of loans paid to borrowers is affected by interest rate spread, and that interest rate regulations have far-reaching implications on asset non-performance since they determine the interest rate spread in banks and assist alleviate moral hazards incidental to NPAs. As interest rates are benchmarked against the associated non-performing assets and non-performing assets are attributed to high cost of loans, credit risk management techniques indirectly affect the value of a bank’s interest rate spread. Since an inefficient interest rate policy might raise interest rates and, in turn, NPAs, the study suggests that commercial banks in RBI should evaluate their clientele and charge interest rates properly. To lower the number of nonperforming loans (NPAs), they implement strict rules on interest rates charged by banks in order to regulate their interest rate spread and improve periodic/regular credit risk monitoring of their loan portfolios.

Impact of Risk Management on the Financial Performance of Listed Deposit Money Banks (DMBS) in Nigeria

This study looks at how risk management affects Nigeria's publicly listed deposit money institutions' financial performance (DMBs). The 10 commercial banks in Nigeria with licenses are being researched. The data used spans 12 years from 2009 to 2020 and is secondary data. The Hausman test was chosen because it suggests that a random effect model should be employed for the analysis of the panel data utilized in this study. It was determined that there is a statistically significant association between net interest margin (NIM), credit risk management (CRM), liquidity risk management (LRM), and interest rate risk management (INTRM) using the ordinary least square random effect regression model. More specifically, credit and interest rate risk management have a significant negative impact on the profitability of Nigeria's listed deposit money banks, suggesting that an increase in risk management variables will result in a decline in the financial performance of Nigeria's listed deposit money banks. Therefore, to boost their profitability, Nigeria's listed deposit money banks must enhance their credit risk management techniques.

The Effect of Credit Risk on Financial Performance of Deposit Banks In Turkey

The aim of this paper is to analyze the impact of credit risk on banks performance. The dataset consist of 26 commercial banks operating in Turkey between 2005 - 2017. The secondary data collected from the statistical report of the Banks Association of Turkey. Three panels’ data are considered respectively state-owned banks, privately-owned banks and foreign banks in order to compare banks according to their ownership structure. Return on Asset (ROA) and Return on Equity (ROE) were used as proxies for financial performance indicators while Non-Performing Loans (NPLs) was used as credit risk indicators. The estimation results showed that there is a negative relationship between credit risk and ROA as well as between credit risk and ROE. This result suggest that there is a relationship between credit risk management and profitability of Turkish deposit banks from the period of 2005 to 2017. Accordingly, banks should focus more on credit risk management, especially on the control and monitoring of non-performing loans. In addition, managers should focus more on modern credit risk management techniques.

Impact of Credit Risk Management Systems on the Financial Performance of Commercial Banks in Uganda

The paper is set to analyse the impact of credit risk management on the financial performance of commercial banks in Uganda for a period of 2006–2015 using panel data for a sample of 20 commercial banks. The study employs return on assets as a dependent variable and non‑performing loans, growth in interest earnings and loan loss provisions to total loans as credit risk measures. Secondary data is sourced from the Bank scope database, African development bank and the central bank of Uganda. The study employs descriptive statistics, regressions and correlation analysis. Regression models are to estimate the magnitude of significance of credit risk management on the performance of commercial banks in Uganda. The study revealed that credit risk management impacts on the performance of Ugandan commercial banks. The results portrayed that banks’ performance was inversely influenced by non‑performing loans which may expose them to large magnitudes of illiquidity and financial crisis. Thus given such results, the researcher recommends that banks need to enhance their credit risk management techniques not only to earn more profits but also to maintain a qualitative asset portfolio and attention be given to non‑performing loans, loan loss provision to total loans and growth in interest earnings that were found to be significant. Banks need to design appropriate credit policies that must handle all necessary conditions before advancing credit to their customers and also develop strong credit administration committees and teams that must conduct appropriate and sound loan appraisal evaluations and which must also monitor the loans throughout the required processes right from extending a loan to a customer up to the completion of loan repayments so as to mitigate credit risks.

Credit Risk Management and Financial Performance of Microfinance Institutions in Kampala, Uganda

The objective of this study was to evaluate whether relationship exist between credit risk management techniques and financial performance of microfinance institutions in Kampala, Uganda. Specifically, the study examined whether there is a relationship between credit risk identification, credit risk appraisal, credit risk monitoring, credit risk mitigation and financial performance of microfinance institutions in Kampala using sample of 60 members of staff in finance and credit departments of three licensed microfinance institutions in Kampala, Uganda namely Finca Uganda Ltd, Pride Microfinance Ltd, UGAFODE Microfinance Ltd. Primary data was collected using questionnaires and it comprised of closed ended questions. Secondary data was collected from the microfinance institutions (MDI’s) annual reports (2011 - 2015). Frequencies and descriptive statistics were used to analyse the population. Pearson linear correlation coefficient was adopted to examine relationship between credit risk management techniques and financial performance. The findings indicate that credit risk identification and credit risk appraisal has a strong positive relationship on financial performance of MDIs, while credit risk monitoring and credit risk mitigation have moderate significant positive relationship on financial performance of MDIs. The study recommends, among others, that the credit risk appraisal process should identify and analyse all loss exposures, and measure such loss exposures. This should guide in selection of technique or combination of techniques to handle each exposure. The study concludes that MDIs should continually emphasise effective credit risk identification, credit risk appraisal, credit risk monitoring, and credit risk mitigation techniques to enhance maximum financial performance.

Upravljanje kreditnim rizikom u Islamskom bankarstvu

During the centuries of conventional banking practice, a number of credit risk mitigation techniques and instruments have been developed and the process of their evolution, due to constant changes in the banking business, is continuing. Islamic banks, however, have not yet managed to develop authentic, Shariah acceptable credit risk management techniques to the extent sufficient to meet their needs. Therefore, they are often forced to use conventional techniques, whose consistent application in Islamic banking, due to the Shariah non-compliance of certain techniques or the way in which they are implemented in conventional banking, is quite limited. In this paper, we will analyze the conventional credit risk management and mitigation techniques and their applicability in Islamic banking, the credit risk management practices in Islamic banks, the achieved results and factors that influence the emergence and intensity of credit risk in Islamic banking.

Credit Risk Management and Financial Performance of Microfinance Institutions in Kampala, Uganda

The objective of this study was to evaluate whether relationship exist between credit risk management techniques and financial performance of microfinance institutions in Kampala, Uganda. Specifically, the study examined whether there is a relationship between credit risk identification, credit risk appraisal, credit risk monitoring, credit risk mitigation and financial performance of microfinance institutions in Kampala using sample of 60 members of staff in finance and credit departments of three licensed microfinance institutions in Kampala, Uganda namely Finca Uganda Ltd, Pride Microfinance Ltd, UGAFODE Microfinance Ltd. Primary data was collected using questionnaires and it comprised of closed ended questions. Secondary data was collected from the microfinance institutions (MDI’s) annual reports (2011 - 2015). Frequencies and descriptive statistics were used to analyse the population. Pearson linear correlation coefficient was adopted to examine relationship between credit risk management techniques and financial performance. The findings indicate that credit risk identification and credit risk appraisal has a strong positive relationship on financial performance of MDIs, while credit risk monitoring and credit risk mitigation have moderate significant positive relationship on financial performance of MDIs. The study recommends, among others, that the credit risk appraisal process should identify and analyse all loss exposures, and measure such loss exposures. This should guide in selection of technique or combination of techniques to handle each exposure. The study concludes that MDIs should continually emphasise effective credit risk identification, credit risk appraisal, credit risk monitoring, and credit risk mitigation techniques to enhance maximum financial performance.

Effects of Basel III Framework on Capital Adequacy of Commercial Banks in Kenya

Purpose:The purpose of the study was toassess the effects of Basel III framework on capital adequacy requirement in commercial banks in Kenya. The study sought to address the following research questions: why are capital adequacy regulations important in commercial banks in Kenya? What challenges are commercial banks facing in the implementation of capital adequacy requirement? What measures have commercial banks taken to ensure compliance with the capital adequacy requirement?Methodology:A descriptive survey design was applied to a population of 43 commercial banks operating in Kenya. The target population composed of the 159 management staff currently employed at the head offices of the various commercial banks in Kenya. The population was composed of Senior, Middle and Junior or Entry level Management staff. A sample of 30% was selected from within each group.Primary data was gathered using questionnaires which were dropped off at the bank’s head offices and picked up later when the respondents had filled the questionnaires. Descriptive analysis was used to analyze quantitative data while content analysis was used to analyze qualitative data.Results:The findings show that capital adequacy requirement is important in commercial banks because it leads financial stability in the Kenyan economy, improves credit risk management techniques as poor credit risk management requires more capital and leads to reduced vulnerability to liquidity shocks due to the sound capitalization policies being implemented under the Basel III framework. Findings also revealed that capital adequacy affected the balance sheet structure of the commercial banks in Kenya.Unique contribution to theory, practice and policy: The study recommends that banks should continue the pursuit of various strategies to ensure that they are in compliance with Basel III requirements and the Central Bank of Kenya’s Prudential Guidelines. The staff of this committee should be drawn from mainly the finance, legal, compliance and treasury departments. Compliance with the capital requirements will lead to a safety net for all commercial banks as the additional capital will act as a cushion that absorbs losses in case of distress in the commercial banking sector.

IMPROVING THE CREDIT SCORING MODEL OF MICROFINANCE INSTITUTIONS BY SUPPORT VECTOR MACHINE

Credit risk is the most challenging risk to which all the financial institutions are exposed. Credit scoring is the main analytical technique for credit risk assessment of all financial institutions. Microfinance Institutions - one of the financial institutions who would lend money to financially weaker section people are prone to the credit risk due to their nature of service and need proactive credit risk management techniques for their long-term sustainability. Most of the Microfinance Institutions follow traditional statistical techniques for their Credit scoring. The Credit Scoring with data mining techniques in the microfinance industry is relatively a recent application. This paper explores Credit scoring of Microfinance institutions with a novel non-parametric technique called Support Vector Machine. In the proposed model datasets of a Microfinance Institution in Bangalore are compared with other traditional proposed models . The results show that Support vector machines show a higher accuracy rate of classification.

Assessing the Effectiveness of Credit risk Management Techniques of Microfinance firms in Accra

One fundamental problem faced by the Microfinance industry in Ghana during the period 2003-2007 was the technique adopted for credit risk management by the Microfinance firms (MFFs). This problem prompted this deductive study which was to assess the effectiveness of the techniques adopted by the MFFs to manage their credit risks during that period. The research examined the effectiveness of the techniques used by the firms. It was carried out with the support of a 5-member team from the Institute of Professional Studies, Accra, who assisted during the data collection phase of the study. The study was conducted using 20 Micro-firms in Accra which were randomly selected. The study established that the small MFFs were more vulnerable to credit risk than the bigger firms. The study came out with the recommendations that the MFFs should invest in computerised systems that would enable them compute and assess on a continuous basis, their credit risks track records and generate reports on credits granted. The firms should encourage their clients to insure against risk that might affect their businesses, invest in quality manpower so that they could assess their clients efficiently and help in managing their clients risk bearing portfolio. It was also recommended that the continuous use of written policies that guided most of the firms on credit granting should be encouraged by all the firms.Keywords: Risk, Creditworthiness, Microfinance, Firms, Management, Loan,

Effect 0f Credit Risk Management Techniques 0n The Performance 0f Unsecured Bank Loans Employed Commercial Banks In Kenya

Financial risk in a banking organization is possibility that the outcome of an action or event could bring up adverse impacts. Such outcomes could either result in a direct loss of earnings / capital or may result in imposition of constraints on bank’s ability to meet its business objectives. The purpose of this study was to investigate the effect of credit risk management techniques on the performance of unsecured bank loans by commercial banks in Kenya.

Inefficience des banques dans un pays en mutation : cas de la Tunisie

AbstractIn this study, we conduct a two-stage analysis of the Tunisian banks technical inefficiency. Modelling efficiency, in this context, allows overcoming the limits of conventional approaches, particularly those related to the complicated and unknown correlations affecting the efficiency scores. We use the Simar and Wilson (2007) single bootstrap procedure, to asses the effect of banking activity key variables on the technical efficiency of Tunisian banks. Results suggest that loans quality and undercapitalisation are the most important factors that affect efficiency. They also show that big size banks and public one’s are the less efficient; the latter were mandated to support various economic and social projects which don’t satisfy profitability requirements. It follows that Tunisian banks have to improve their credit risk management techniques and monetary authorities are asked to accelerate public banks privatisation.JEL Classification: G2, C34, C44, C67.

Bank Behaviour with Access to Credit Risk Transfer Markets

One of the most important recent innovations in financial markets has been the development of credit derivative products that allow banks to more actively manage their credit portfolios than ever before.We analyze the effect that access to these markets has had on the lending behavior of a sample of banks, using a sample of banks that have not accessed these markets as a control group. We find that banks that adopt advanced credit risk management techniques (proxied by the issuance of at least one collateralized loan obligation) experience a permanent increase in their target loan levels of around 50%. Partial adjustment to this target, however, means that the impact on actual loan levels is spread over several years.Our findings confirm the general efficiency enhancing implications of new risk management techniques in a world with frictions suggested in the theoretical literature.

Bank Behavior with Access to Credit Risk Transfer Markets

One of the most important recent innovations in financial markets has been the development of credit derivative products that allow banks to more actively manage their credit portfolios than ever before.We analyse the effect that access to these markets has had on the lending behaviour of a sample of banks, using a sample of banks that have not accessed these markets as a control group.We find that banks that adopt advanced credit risk management techniques (proxied by the issuance of at least one collateralized loan obligation) experience a permanent increase in their target loan levels of around 50%.Partial adjustment to this target, however, means that the impact on actual loan levels is spread over several years.Our findings confirm the general efficiency-enhancing implications of new risk management techniques in a world with frictions suggested in the theoretical literature. Keywords: credit derivatives, bank loans, moral hazard JEL classification numbers: G20, G21, G28 (This abstract was borrowed from another version of this item.)

NPA Management in India: In Search of a New Paradigm?

The banking & financial sector in India is undergoing rapid transformation Banks & financial institutions have amassed huge NPA's (Non-Performing Assets). This paper presents a comparative analysis of NPA management practices in several Asian countries and seeks to find out whether Indian institutions should emulate these. It also looks at several innovations in NPA and credit risk management techniques at banks & financial institutions in the last decade. This paper also analyzes the efficacy of credit derivatives as a tool for credit risk management and insolvency management in banking and financial institutions. It critically analyzes the evolution, growth and usage of these instruments since their introduction in the banking sector in India.