Determinants of Credit Risk Management Practices: The Case of United Bank Southwest District

Abstract

Sound credit management is a prerequisite for a financial institutions stability and continuing profitability, while deteriorating credit quality is the most frequent cause of poor financial performance. The main objective of this study was to assess credit risk management system and practices in selected branches of United bank of Southwest district. Selection of branches for the study was done based on mainly amount of deposits, foreign exchange and loan performance made by the banks. Five branches out of thirty-three were selected based on their performances as of the financial year 2021/2022. In this study, census survey was used in order to target participants of the study. For the purpose of this study, both primary and secondary data were used. Primary data were collected through questionnaires distributed to respondents that involved professional working in the banks such as managers and officers working on loan processing. The data were analyzed using descriptive and regression statistics by using SPSS software version 21. The finding of the study showed that the current level of credit risk management of the bank is moderate. The results also indicated that credit risk environment (CRE), credit granting process (CGP), credit administration, measurement and monitoring process (CAMMP), and control over credit risk (CCR) were statistically significant in predicting effectiveness of credit risk management practices of the bank. The results additionally indicate that the bank has been exposed to credit risk which directly contributes to the increment of NPL. Thus, it is recommended that the bank should develop independent risk management policy and procedure from credit policy and procedure to overcome those problems and to take measures on the spot