credit risk management tools practiced in ethiopian commercial banks

International Journal of Social Science & Interdisciplinary Research_______________________________________ ISSN 2277-3630
IJSSIR, Vol. 4 (5), MAY (2015), pp. 52-72
Online available at indianresearchjournals.com
CREDIT RISK MANAGEMENT TOOLS PRACTICED IN
ETHIOPIAN COMMERCIAL BANKS
ATAKELT HAILU ASFAW¹; PROF. P. VENI²
1.
2.
RESEARCH SCHOLAR IN THE DEPARTMENT OF COMMERCE AND MANAGEMENT STUDIES, ANDHRA
UNIVERSITY, VISAKHAPATNAM INDIA.
PROFESSOR, THE DEPARTMENT OF COMMERCE AND MANAGEMENT STUDIES, ANDHRA UNIVERSITY,
VISAKHAPATNAM, INDIA.
ABSTRACT
Examining and comparing the Credit risk management tools practiced in public and private Ethiopian
commercial banks is the main purpose of this study. Primary data, gathered through self-developed
questionnaire, was used for this study. The survey result revealed that Collateral, Guarantee, Multi-tier
Credit approval and Credit limit system are the four mostly applied and highly effective Credit risk
management instruments in Ethiopian commercial banks. Additionally, Diversification has been highly
applied and effective tools in private banks and setting strong covenants as well while its application has been
moderately effective. Stress testing and Risk based loan pricing technique have been slightly applied in public
sector commercial banks. Types of credit, deposit rate, operating cost, lending rate of other banks, and bank’s
profitability are mostly considered factors while pricing loans. It is observed that there was no statistically
significant difference in the mean score of the level of considering loan-pricing factors between public and
private sector banks. Furthermore, there was statistically significant difference in the level of applying Credit
risk management tools between private and public commercial banks. Finally, Ethiopian commercial banks
appear to be highly conservative lender on consumer loans, agricultural loans and Micro and Small enterprise
loan while highly aggressive on Commercial loans, Import and export credit facilities.
KEYWORDS: Credit, Import and export.
REFERENCE
1.
Asthana, V. P. (2009). financial risk management. india: himalaya.
2.
Basel Committee on Banking Supervision (BCBS), Principles of managing credit risk, May
200), available at <http:/www.bis.org/pub/bcbs/68.pdf>
3.
Choudhry, M. (2012). The Principles of Banking. John Wiley &Sons Singapore Pte. Ltd.
4.
COLQUITT, J. (2007). Credit Risk Management: How to Avoid Lending Disasters and
Maximize Earnings. McGraw-Hill.
5.
Biabani, S., Gilaninia, S., & Mohaba, H. (2012). Assessment of Effective Factors on NonPerforming Loans (NPLs) Creation: Empirical Evidence from Iran (2006-2011). Journal of Basic
and Applied Scientific Research .
International Journal of Social Science & Interdisciplinary Research_______________________________________ ISSN 2277-3630
IJSSIR, Vol. 4 (5), MAY (2015), pp. 52-72
Online available at indianresearchjournals.com
6.
Bodla, B., & Verma, R. (2009). Credit Risk Management Framework at Banks in India. the
Icfai Journal of Bank Management , 8.
7.
Federal Reserve Bank of Kansas City and Federal Reserve Bank of St. Louis 2004, “Federal
Reserve Center Publications for on Line Learning”, U.S.A.
8.
Heffernan, S. (2005). Modern Banking. John Wiley & Sons Ltd.
9.
Horcher, K. A. (2005). Essentials of Financial Risk Management. John Wiley & Sons.
10.
Hussein A. Hassan Al-Tamimi, F. M.-M. (2007). Banks' risk management: a comparison
study of UAE. Emerald , 8 (4 pp. 394 - 409), 396.
11.
Jayadev, M. (2006). internal Credit Rating Practices of Indian Banks. Money, Banking and
Finance , 41 (11), 1069-1078.
12.
Joseph, C. (2013). Advanced Credit Risk Analysis and Management. Great Britain: John
Wiley & Sons.
13.
Kisaka, S. E., & Simiyu, R. S. (2014). A Survey of Credit Risk Management Techniques
Used by Microfinance Institutions in Kenya. Research Journal of Finance and Accounting , 5 (13).
14.
Machiraju, M. R. (2008). Modern commercial banking. In M. R. Machiraju. New delhi: New
Age International (P) Ltd.
15.
National Bank of Ethiopia, annual report, (2013). Available at
16.
SAUNDERS, A., & ALLEN, L. (2002). New Approaches to Value at Risk and Other
Paradigms (2nd ed.). New York.: John Wiley & Sons, Inc.
17.
Saunders, A., & Cornett, M. M. (2009). financial institution management:A Risk
Management Approach. The McGraw−Hill.
18.
Schroeck, G. (2002). Risk management and value creation in financial institutions. United
States of America: John Wiley & Sons.
19.
SINGH, A. (2013). CREDIT RISK MANAGEMENT IN INDIAN COMMERCIAL
BANKS. International Journal of Marketing, Financial Services & Management Research , 2 (7),
147-151.
Tafri, F. H., Rahman, R. A., & Omar, N. (2011). Empirical evidence on the risk management
tools practised in Islamic and conventional banks. Qualitative Research in Financial Markets , 2 (3),
86 - 104
20.