THE ASSESSMENT OF CREDIT RISK MANAGEMENT PRACTICE: THE CASE OF WEGAGEN BANK S.C

Abstract

Financial institutions play an indispensable role for well-functioning of an economy. Sound credit risk management is a prerequisite for a financial institution’s stability and continuing profitability, while deteriorating credit quality is the most frequent cause of poor financial performance and condition. This research assesses the practice of credit risk management in Wegagen bank S.c. The purpose of undertaking this study is to assess the credit risk management practice in Wegagen bank and to see the possible aspects that influence the credit management activity of the bank and to suggest possible solution for those aspects touching the bank credit risk management process. For the purpose of the study both primary and secondary data have been used. Primary data was collected using semi structured questionnaire. The secondary data has been collected from the bank’s audited annual reports. The study followed Descriptive research design and quantitative research approach. Descriptive statistical tools were used to analyze the collected data. The study found that lack of credit follow up by branches, lack of information system to support the credit risk grading system of the bank, borrower lack of knowledge on loan usage, fund diversion for unintended purpose, and centralized decision making of the bank influence the effective credit risk management practice of the bank. In contrary, credit policy and procedure of the bank is in line with NBE’s rules and regulation. Finally, based on this findings recommendations were given; keeping up with the current portfolio quality, to strictly adhere & implement the bank’s credit policy and procedure, to take up pre-audit as part of the credit analysis process, managing the length of time it takes to process one loan request.