ASSESSMENT ON THE PRACTICES OF CREDIT RISK MANAGEMENT AND ITS EFFECT ON THE FINANCIAL PERFORMANCE OF BANKS IN ETHIOPIA

Abstract

Credit risk management has become an important topic for financial institutes, especially since the business sector of financial services is related to conditions of uncertainty. The turmoil of the financial industry emphasizes the importance of effective risk management procedures. Consequently, this thesis studies “Credit Risk management and its impact on performance in Ethiopian Banks.” This research objective was formulated in order to gain a better understanding of credit risk management and its impact on performance (return on asset).In this study Quantitative research design is employed. The data were collected by cross sectional survey method. The study uses secondary data gathered through content analysis of the selected banks’ annual reports and accounts. Thereafter, these data is then analysed using descriptive statistics to depict pattern and robust standard errors OLS regression to estimate significant influence between banks’ risk management practices and their financial performance. The study also analysis primary data by descriptive statistical tools and on hypothesis testing using regression model. This leads the researcher to conclude in the recommendation section that banks with good credit risk management policies have a lower loan default rate and relatively higher return on asset