ASSESSMENT OF CREDIT RISK MANAGEMENT SYSTEM IN ETHIOPIAN COMMERCIAL BANKING INDUSTRY

Abstract

Banking is topic, practice, business or profession almost as old as the very existence of man, but literarily it can be rooted deep back the days of the Renaissance (by the Florentine Bankers). It has sprouted from the very primitive Stone-age banking, through the Victorian-age to the technology-driven Google-age banking, encompassing automatic teller machines (ATMs), credit and debit cards, correspondent and internet banking. Credit management has always been a vicinity of concern not only to bankers but to all in the business world because the risks of a trading partner not fulfilling his obligations in full on due date can seriously jeopardize the affairs of the other partner. The main objective of this study is to have a clearer picture of how the commercial banks assess its credit before approving or rejecting loan request from clients, which could have significant impact on the bank’s financial performance. For the purpose of the study, both primary and secondary data are used. Descriptive statistical tools are used in analyzing the data collected. The loan growth and client reputation was not as required due to the weaknesses in credit creation and procedure. the default problem in the bank was mainly due to loan diversion, market problem, and environmental problem which all leads to credit risk; factors controllable by the banks was the major contributor to non -performing loans; and the enforcement measures used by the banks for default loans was found ineffective, among others. This study therefore hopes to provide an insight into this topic and help promote further research into same. In general, this research has a practical value, as it will disseminate the findings to the survey participants for their consideration. Subsequently, the bank can incorporate the recommendations from this study into its credit assessment processes in order to sustain its business performance.