ASSESSMENT OF CREDIT RISK MANAGEMNT PRACTICES; THE CASE OF DEVELOPMENT BANK OF ETHIOPA, ADDIS ABABA

Abstract

The purpose of this study was to assess the credit risk management policies and practice of Development Bank of Ethiopia. To undertake the study, a descriptive research design was used. The sample consisted of bank managers, credit analysts, supervisors and workers in Addis Ababa hade office. A structured questionnaire was used to collect data from respondents. Censes sampling technique was employed to select 60 respondents who have direct experience with credit. However, 2 respondents did not return the questionnaires and 58 questionnaires were collected. The data obtained from the 58 respondents were analyzed using descriptive statistics. Findings revealed that Development Bank has a documented policy, strategies and guidelines to manage credit risk. The Bank makes use of credit risk management techniques that include; thorough risk rating, asking for collateral and checking the credit history of the borrowers. Additionally, the bank uses different risk management tools or instruments like knowing borrowers by using 5C of credit which are Character, Capital, Capacity, market condition and Collateral. Most of the strategies employed by the Bank align with the principles of credit risk management. There are factors affecting credit risk management. One is natural and environmental factors, which are one of the important obstacles to the effectiveness of credit risk management. In order to manage the dynamic nature of credit risk, the Development Bank’s management needs to periodically revise its credit policy and procedures, incorporating the feedback of clients and employees, in order to manage credit risk.