ASSESSMENT OF CREDIT RISK MANAGEMENT PRACTICES IN NIB INTERNATIONAL BANK S.C.

Abstract

Credit risk management has become an important topic for financial institutions, especially since the business sector of financial service is related to conditions of uncertainty. The turmoil of the financial industry emphasizes the importance of effective risk management procedures. The purpose of the research is to assess the credit risk management practices of NIB International Bank S.C. through examining the policy and procedures, the tools of credit risk management the credit granting process, performed activities of credit risk management reporting system and credit risk management process. The researcher applied purposive (judgmental) sampling technique. The idea behind purposive sampling is to concentrate on people who are directly involved in credit processing and administering because they would better be able to assist with the relevant research data. Qualitative and quantitative (mixed) research method was used. The type of data used for the study includes qualitative and quantitative data. Primary and secondary sources of data were used for the study. The main primary source of data is through the use of questionnaires for credit and risk management related staffs and borrowers of the bank and interview for management staffs. In the case of the secondary data, annual and quarterly reports are used. Data collected from 100 employees who are involved in the lending decision and risk management and from 28 borrowers of the bank. The researcher used descriptive tools of data analysis such as frequency and percentage. 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, measuring, evaluating, monitoring and controlling mechanism. However, the study also concluded that the bank has pitfalls such as absence of training for employees which results to less understanding and identification of risks, 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 Nib International Bank S.C. should develop a flexible and conditions based policy and procedure to manage credit risk and prepare training for that credit related staffs to manage credit risk effectively.