ASSESSMENT OF CREDIT RISK MANAGEMENT PRACTICE OF COMMERCIAL BANK OF ETHIOPIA

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 quantitative research method and both primary data (questionnaire) and secondary data were collected to meet the objective of the study. 106 samples were involved at head office and district office who works on credit to get reliable and valid information about the study subject. The data was analyzed using descriptive statistics technique and frequency table by using SPSS software. 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 Commercial Bank of Ethiopia should develop independent risk management policy and procedure from credit policy and procedure to overcome those problems and to take measure on the spot.