An assessment on the effectiveness of credit risk management tools utilized by financial institutions in Ghana.
Credit risk management is a very essential model for any financial institution, since most of the financial decisions revolve around the corporate cost of holding risk. This management practice is particularly important to banks since credit risk constitutes their core business processes. The banking industry in Ghana though is thriving profitably; the industry suffers the problem of credit risk. Results of the study revealed that credit risk management is a very effective and efficient management tool that helps to reduce credit default rate, non-performing loans, and increase in cash flows as well as portfolio growth amongst financial institutions. However, this paper concludes that methods and procedures used by financial institutions to manage credit risk are credit assessment, purpose of the credit, track records of applicant, monitoring of credit, controlling of credit, evaluating collateral provided by the customer, and proposing of terms and conditions in relation to the loan requested. Further, the study also revealed that both external and internal factors of environment affected the operations of credit risk management. These factors are: interest rates, currency exchange rates, efficient management of government fiscal policies and political stability of the country.
Thesis submitted to the Department of Business Administration, Ashesi University College, in partial fulfillment of Bachelor of Science degree in Business Administration, May 2012
Ghana, risk management, financial institutions