ASSESSMENT OF CREDIT RISK MANAGEMENT POLICIES AND PRACTICES IN AWASH BANK S.CO

Abstract

The purpose of this study was to assess the credit risk management policies and practice of Awash Bank. To undertake the study, a descriptive research design was used. The sample consisted of branch managers, credit analysts, supervisors and experts in Addis Ababa City branches. A structured questionnaire was used to collect data from respondents. Purposive sampling technique was employed to select 87 respondents who have direct experience with credit. However, 10 respondents did not return the questionnaires and 77 questionnaires were collected. The data obtained from the 77 respondents were analyzed using descriptive statistics. Findings revealed that Awash bank has a well-documented policy, strategies and guidelines to manage credit risk. The Bank makes use of credit risk management procedure that include; thorough loan appraisal, asking for collateral and checking the credit history of the borrowers. Additionally, the bank uses different risk management tools like covenants, credit rationing, loan securitization, and loan syndication. Most of the strategies employed by the Bank align with the principles of credit risk management. Different factors which are important to the effectiveness of credit risk management were also identified. In order to manage the dynamic nature of credit risk, Awash Bank’s management need to periodically revise its credit policy and procedure incorporating the feedback of clients and employees.