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1.1 Background of the study

Credit Risk management in a financial institution starts with the establishment of sound lending

principles and an efficient framework for managing the risk. Credit Risk management is very

important to banks as it is an integral part of the loan process. Adequately managing credit risk

in financial institutions is critical for the survival and growth of the financial Institution. In the

case of banks, the issue of credit is even of greater concern because of the higher levels of

perceived risks resulting from some of the characteristics of clients and business conditions that

they find themselves in.

The health of the financial system has important role in the country (Das & Ghosh, 2007) as its

failure can disrupt economic development of the country. The cost of holding risk matters to

every organization, particularly the banking sector. Most of the financial decisions whether on

dividends, investment, capital structure, etc., revolve around the cost of holding risk. Banks

provide liquidity on demand to depositors through the current account and extend credit as well

as liquidity to their borrowers through lines of credit (Kashyap, Rajan and Stein, 1999). Due to

these fundamental roles, banks have always been concerned with both solvency and liquidity.

According to Saidenberg and Straham, (1999) banks hold capital as a buffer against insolvency,

1
and they hold liquid assets to guard against unexpected withdrawals by depositors. These have

made banks actively evaluate and take risks on a daily basis as part of their business processes.

Given the central role of market and credit risk in their business, the banks’ success requires that

they are able to identify, assess, monitor and manage these risks in a sound and sophisticated

way. Llewellyn (1992) confirmed that competitive and regulatory pressures are likely to

reinforce the central strategic issue of capital and profitability and cost of equity capital in

shaping banking strategy.

In recent times, banks’ risk management has come under increasing scrutiny in both academia

and practice. Banks have attempted to sell sophisticated credit risk management systems that can

account for borrower risk and perhaps more importantly, the risk-reducing benefits of

diversification across borrowers in a large portfolio. Regulators have even begun to consider

using banks’ international credit models to devise a capital adequacy standard (Bank for

International Settlements, 2001).

In order to assess and manage risks, banks must have effective ways to determine the appropriate

amount of capital that is necessary to absorb unexpected losses arising from their market, credit

and operational risk exposures. In addition to this, profits that arise from various business

activities of the banks need to be evaluated relative to the capital necessary to cover the

associated risks.

Currently, there is no clear understanding of how banks choose their capital structure and what

factors influence their corporate lending behaviour. Houston, James and Marcus (1997) found

2
that lending at large banks is less subject to changes in cash flow and capital. Jayaratne and

Morgan (1999) on their part found that shift in deposit supply affects lending at small banks that

do not have access to large internal capital market. Akhavein, Berger and Humphrey (1997)

reveal that large banks following mergers tend to decrease their capital and increase their

lending. Bank size seems to allow banks to operate with less capital and, at the same time,

engage in more lending.

Banking literature has not emphasized the link between risk management, but recent studies have

rather viewed bank loans and advances as a response to regulatory costs (Benveniste and Berger,

2010), as a source of non local bank capital to support local investments (Carlstrom and

Samolyk, 1995; Pennacchi, 1988), as a function of funding costs and risks (Gorton and

Pennacchi, 1995) and possibly as a way to diversify (Demsetz, and Strahan, 1997).

1.2 Statement of the Problem

The past decade has seen dramatic losses in the banking industry. Firms that had been

performing well suddenly announced large losses due to credit exposures that turned sour,

interest rate positions taken, or derivative exposures that may or may not have been assumed to

hedge balance sheet risk.

Credit risk in banking is commonly defined as the probability of a borrower defaulting his or her

loan commitments. The present possibility for banks to diversify to broader range of Services

and products make life really cool for banking entrepreneurs and managers. But this

diversification advantage is a once a life time opportunity that should be consumed. The very

nature of the banking business is so sensitive because more than 85% of their liability is deposits

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from depositors (Saunders, Cornett, 2005). Banks use these deposits to generate credit for their

borrowers, which in fact is a revenue generating activity for most banks. This credit creation

process exposes the banks to high default risk which might led to financial distress including

bankruptcy. All the same, beside other services, banks must create credit for their clients to make

some money, grow and survive stiff competition at the market place.

The world has experienced remarkable numbers of banking and financial crises during the last

thirty years. Caprio and Klingebiel (1997) identify 112 systemic banking crises in 93 countries

since the late 1970s. Demirguc-Kunt and Detragiache (1998) have identified 30 major banking

crises that are encountered from early 1980s and onwards. According to the above researchers

most of these banking crises were experienced in the developing countries such as Ghana.

Interestingly, the majority of the crises were caused by unsecured loans. Persistent loan defaults

have become an order of the day in developing countries such as Ghana. There has been hardly

any bank in Ghana which has not experienced persistent loan default. This is evidence by High

levels of Non Performing loans (NPLs) which is currently at 14% as at the month ending

February 2013, though some banks are still having Non Performing loans (NPLs) as high as

more than 30% as at February 2013..

Healthy loan portfolios are vital assets for banks in view of their positive impact on the

performance of banks. Unfortunately, some of these loans usually do not perform and eventually

result in bad debts which affect banks earnings on such loans. These unsecured loans become

cost to banks in terms of their implications on the quality of their assets portfolio and

profitability. This is because in accordance with banking regulations, banks make provisions for

non-performing loans and charge for bad loans which reduce their loan portfolio and income.

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The principal concern of this paper was to assess what extent banks can manage their credit

risks, what tools or techniques they use to manage their credit risk and to what extent Banks

performance can be affected by proper credit risk management policies and strategies using

Access Bank (Ghana) limited.

1.3 Objectives of the study

The objective of the study is categorize into two groups: General objective and specific

objectives

1.3.1 General objective

 The main objective of this study is to analyze credit risk management and its impact on

the overall performance of Access Bank (Ghana) Ltd.

1.3.2 Specific objectives

 To understand the necessary procedures needed to carry out adequate credit risk

management at Access Bank (Ghana) Limited.

 To understand the technique on how credit risk impact on profitability of the bank;

 To assess the impact of loan default on financial performance of banks

 To find out the extent of adequacy of credit risk management practices for efficient and

sustainable credit delivery.

 To know the challenge that faced by the financial institution (Access Bank) in credit risk

Management.

 To provide the relevant suggestions and recommendations to management to improve

credit risk management practices.

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1.4 Research Questions

Evolving from the problem statement discussed above, the researches study aims at providing

answers to the following suggested questions

 What is risk and bank risk management strategies?

 What are the procedures needed to carry out adequate risk management at Access

Bank (Ghana) Limited?

 What are the techniques to manage the different types of risks?

 Is there a gradual improvement in regards of risk management at Access Bank

(Ghana) Limited?

1.5 Significance of the study

In addition to the academic importance especially of Kwame Nkrumah University of Science and

Technology (KNUST), the researches see the significance of the paper as:

 To contribute to the existing literature about credit risk management and its effects on

banks.

 To show the relationship between credit risk management and performance.

 To show the challenges faced by the financial institution with regard to credit risk

management.

 To show the major tools or techniques used by financial institution to manage their credit

risk.

 It will be used as an input for further studies.

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  It will be useful for financial institution by providing information in credit risk

management.

 To the credit managers and officers, the study will guide them in adjusting credit policies

so that they suit requirements of lending.

 To future academicians especially of KNUST, the study will help in gaining insight about

credit management.

The accomplishment of the study will enable the researchers to acquire hands on skills about

processing of research work and data analysis. This proficiency will enable the researcher to

handle such related work with a lot of precision and proficiency.

1.6 Scope and limitations of the study.

All research studies have limitations and finite scope. The researched intend to limit the

scope to only Access Bank (Ghana) Limited. This is premised on the fact that the Bank has

been operating long enough to give the kind of academic insight the study seeks to offer.

Some of the limitations the researchers intend to face include the following:

 Difficulties in gathering information which were very crucial for generating the needed

results which may also limit the level of credibility of the findings.

 Prompt attention would not be given to the answering of the questionnaires as researchers

were working within a specified time frame. As a result of limited time within which to

complete this work, the study was carried out using a case study approach.

 Financial constraints and cooperation from the group members would also limit the

researchers efforts

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1.6 Organization of the Study

The researchers organised the study in five chapters. The first chapter looked at the introduction

which provides a brief background of the study, the statement of the problem as well as the

significance of the study. It also spells out the general and specific objectives of the study

together with the research questions which the study seeks to address. Chapter one will finally

ends with a comprehensive explanation of the scope and limitation of the study.

The second chapter will provide a review of the theories and existing literature about the topic of

study. It will engage in the discussion and review of already existing studies and research works

that have been undertaken on the research topic and their possible implications on the current

research underway.

Chapter three deals with a comprehensive explanation of the research methodology used to

undertake the study. It expounds extensively on the research design, sampling methods, the

sources and methods of data collection and the data analysis process.

The fourth chapter will however provide a detailed analysis, interpretation and discussion of the

findings of the study. The findings to this research will be presented in the form of graphs, tables

and other quantitative computations.

The final chapter (chapter five) will outline a summary of the major findings together with the

conclusion and recommendations made by the researcher.

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 CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter reviews the literature on credit risk management in banking. It discusses issues on

credit risk management from different perspectives and with the view of giving a theoretical

foundation to the study. It starts with an overview of the banking system in Ghana, followed by

theoretical framework and introduction of risk management in the Ghanaian Banking system and

credit risk management procedure.

2.1 Overview of Ghanaian Banking System

The banking industry in Ghana is a very complex one. According to the (World Bank, 2004),

the financial system in Ghana has been stratified into three; formal, semi-formal and informal.

Banks fall under the formal system. A bank is a financial intermediary whose core activity is to

provide loans to borrowers and to collect deposits from savers. In other words, they act as

intermediaries between borrowers and savers. By carrying out the intermediation function,

banks collect surplus funds from savers and allocate them to those (both people and

companies) with a deficit of funds (borrowers).

Section 11(1) of Banking Act 2004 (Act 673) gives the permissible activities of banks as

follows:

(a) Acceptance of deposits and other repayable funds from the public;

(b) Lending;

(c) Financial leasing;

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(d) Investment in financial securities;

(e) Money transmission services;

(f) Issuing and administering means of payment including credit cards, travellers cheques and

bankers’ drafts;

(g) Guarantees and commitments;

There are 162 banks operating in Ghana (Bank of Ghana, 2011). Of this, 28 are commercial

and development banks and 134 are rural banks. According to Bank of Ghana, the commercial

banks have a mixed ownership structure and different customer base (Bank of Ghana, 2004).

There are also five commercial banks which operate on a very small scale. The share of the

total assets of the foreign, development and merchants banks are 30%. This portrays that the

banking sector in Ghana is controlled by a few banks. Rural and community banks are also

commercial banks but cannot go into foreign exchange operations and have very low minimum

capital requirement (World Bank, 2004). They are unit banks owed by people in the

community since they are the shareholders.

Commercial banks are involved in the traditional banking business focusing on universal retail

services. The focus of development banks activities is on medium and long-term financing whilst

merchant banks are fee-based institutions and are largely involved in corporate banking (Buchs

and Mathiseb, 2005). The banking system in Ghana consists of a national network of licensed

and statutory financial institutions engaged in the business of banking under the banking laws of

Ghana. Bank of Ghana is the central bank and it regulates the activities of all the banks in Ghana.

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2.2 Theoretical framework

Banks are financial intermediaries originating loans and consequently facing Credit Risk. Credit

Risk can be defined as the risk of losses caused by the default of borrowers. Default occurs when

a borrower cannot meet his key financial obligations to pay principal and interest. Credit Risk is

defined as the probability that some of a bank‘s assets, especially its loans, will decline in value

and possibly become worthless. Credit Risk is driven by both unsystematic and systematic

components. Unsystematic credit risk covers the probability of a borrower’s default caused by

circumstances that are essentially unique to the individual, whereas systematic credit risk can be

defined as the probability of a borrower’s default caused by more general economic

fundamentals. Because banks hold little owners’ capital relative to the aggregate value of their

assets, only a small percentage of total loans need to go bad to push a bank to the brink of failure.

Thus, management of credit risk is very important and central to the health of a bank and indeed

the entire financial system. As banks make loans, they need to make provisions for loan losses in

their books. The higher this provision becomes, relative to the size of total loans, the riskier a

bank becomes. An increase in the value of the provision for loan losses relative to total loans is

an indication that the bank‘s assets are becoming more difficult to collect (Tshore, Aboagy and

Koyerhoah Coleman). Credit risk is the risk of a loss resulting from the debtor's failure to meet

its obligations to the Bank in full when due under the terms agreed (R.S. Raghavan 2003).

2.3 Introduction to Risk Management of Banks in Ghana.

The banking industry has long viewed the problem of risk management as the need to control

risks which make up most, if not all, of their risk exposure, viz., credit, interest rate, foreign

exchange and liquidity risk. While they recognize counterparty and legal risks, they view them

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as less central to their concerns. The cost of holding risk matters to every organization. Most

financial decisions: whether on capital structure, dividends, investments, etc., revolve around the

costs of holding risk. This issue is particularly important to banks since risk management

constitutes their core business. By its very nature, banking is an attempt to manage multiple and

seemingly opposing needs. Banks provide liquidity on demand to depositors through the current

account and extend credit as well as liquidity to their borrowers through lines of credit (Kashyap,

Rajan and Stein, 1999). Due to these fundamental roles, banks have always been concerned with

both solvency and liquidity. Traditionally, banks hold capital as a buffer against insolvency, and

they hold liquid assets to guard against unexpected withdrawals by depositors (Saidenberg and

Straham, 1999). These have made banks actively evaluate and take risks on a daily basis as part

of their core business processes. Given the central role of market and credit risk in their core

business, the banks’ success requires that they are able to identify, assess, monitor and manage

these risks in a sound and sophisticated way. Banks increasingly recognize the need to measure

and manage the credit risk of the loans they have originated not only on a loan-by-loan basis but

also on a portfolio basis. This is due to the fact that only the aggregate credit exposure is the

relevant factor for the future solvency of banks. The loan portfolio of a typical bank can be

divided in different sub portfolios: large corporate, middle market, small business, commercial

real estate, consumer, home mortgage, etc.

In recent times, banks’ risk management has come under increasing scrutiny in both academia

and practice. Banks have attempted to sell sophisticated credit risk management systems that can

account for borrower risk and perhaps more importantly, the risk-reducing benefits of

diversification across borrowers in a large portfolio. Regulators have even begun to consider

12
using banks’ international credit models to devise a capital adequacy standard (Bank for

International Settlements, 2001).

In order to assess and manage risks, banks must have effective ways to determine the appropriate

amount of capital that is necessary to absorb unexpected losses arising from their market, credit

and operational risk exposures. In addition to this, profits that arise from various business

activities of the banks need to be evaluated relative to the capital necessary to cover the

associated risks. This research focuses on the sub portfolio "middle market" which includes

commercial loans to medium-sized firms. The medium-sized business is of great importance for

the Ghanaian economy. 52% of the economic output and 44% of all investments are attributed to

medium sized firms. Moreover, about 60% of all employees work in medium-sized firms and

80% of all training facilities are provided by this market segment (Graphic Business, Dec. 2011).

The reason for the focus on the middle market segment is not only its economic importance but

rather the kind of credit risk banks face in this sector. Banks mainly absorb the unsystematic part

of credit risk in the middle market segment because they tend to originate loans to many

independent borrowers while avoiding lending large sums to a single borrower. Due to their

business policy, banks frequently show credit concentrations on a regional or industrial basis in

the middle market commercial loan portfolio. Concentrations of credit risk in the middle market

loan portfolio can consequently result in a threat of sizable losses without necessarily any

corresponding increase in prospective returns. Hence, it is important for banks to systematically

identify and measure their credit concentrations and reduce the detected concentrations through

diversification. However, in recent years, the development of markets for credit securitization

and credit derivatives has provided new tools for managing credit risk.

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2.4 Major Types of Risks Faced By Banks

Banking is the intermediation between financial savers on one hand and the funds seeking

business entrepreneurs on the other hand. As such, in the process of providing financial services,

banks assume various kinds of risk both financial and non-financial. Moreover this risk inherent

in the provision of their services differs from one product or service to the other. These risks

have been grouped by various writers in different ways to develop the frameworks for their

analyses but the common ones which are considered in this study are credit risk, market risks

(which includes liquidity risk, interest rate risk and foreign exchange risk), operational risks

(which sometimes include legal risk, and more recently, strategic risk) and reputational risk.

2.4.1 Credit Risk

The analysis of the financial soundness of borrowers has been at the core of banking activity

since its inception. This analysis refers to what nowadays is known as credit risk, that is, the risk

that counterparty fails to perform an obligation owed to its creditor. It is still a major concern for

banks, but the scope of credit risk has been immensely enlarged with the growth of derivatives

markets. Another definition considers credit risk as the cost of replacing cash flow when the

counterpart defaults. Greuning and Bratanovic (2009) define credit risk as the chance that a

debtor or issuer of a financial instrument— whether an individual, a company, or a country—

will not repay principal and other investment-related cash flows according to the terms specified

in a credit agreement. Inherent to banking, credit risk means that payments may be delayed or

not made at all, which can cause cash flow problems and affect a bank‘s liquidity. Credit risk

includes both the risk that a obligor or counterparty fails to comply with their obligation to

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service debt (default risk) and the risk of a decline in the credit standing of the obligor or

counterparty.

2.4.2 Market Risks

Elmer Funke Kupper in his article on Risk Management and Banking defined Market Risk as the

risk to earnings arising from changes in underlying economic factors such as interest rates or

exchange rates, or from fluctuations in bond, equity or commodity prices. Banks are subject to

market risk in both the management of their balance sheets and in their trading operations.

Market risk is generally considered as the risk that the value of a portfolio, either an investment

portfolio or a trading portfolio, will decrease due to the change in value of the market risk

factors. There are three common market risk factors to banks and these are liquidity, interest

rates and foreign exchange rates. Market Risk Management provides a comprehensive

framework for measuring, monitoring and managing liquidity, interest rate, foreign exchange and

equity as well as commodity price risk of a bank that needs to be closely integrated with the

bank’s business strategy.

2.4.2.1 Liquidity Risk

According to Greuning and Bratanovic (2009), a bank faces liquidity risk when it does not have

the ability to efficiently accommodate the redemption of deposits and other liabilities and to

cover funding increases in the loan and investment portfolio. These authors go further to propose

that a bank has adequate liquidity potential when it can obtain needed funds (by increasing

liabilities, securitising, or selling assets) promptly and at a reasonable cost. The Basel Committee

on Bank Supervision, in its June 2008 consultative paper, defined liquidity as the ability of a

15
bank to fund increases in assets and meet obligations as they become due, without incurring

unacceptable losses. Bessis (2010) however considers liquidity risk from three distinct situations.

The first angle is where the bank has difficulties in raising funds at a reasonable cost due to

conditions relating to transaction volumes, level of interest rates and their fluctuations and the

difficulties in funding counterparty. The second angle looks at liquidity as a safety cushion

which helps to gain time under difficult situations. In this case, liquidity risk is defined as a

situation where short-term asset values are not sufficient to match short term liabilities or

unexpected outflows. The final angle from where liquidity risk is considered as the extreme

situation. Such a situation can arise from instances of large losses which creates liquidity issues

and doubts on the future of the bank. Such doubts can result in massive withdrawal of funds or

closing of credit lines by other institutions which try to protect themselves against a possible

default. Both can generate a brutal liquidity crisis which possibly ends in bankruptcy.

Liquidity is necessary for banks to compensate for expected and unexpected balance sheet

fluctuations and to provide funds for growth (Greuning and Bratanovic, 2009). Santomero (1995)

however, posits that while some would include the need to plan for growth and unexpected

expansion of credit, the risk here should be seen more correctly as the potential for funding

crisis. Such a situation would inevitably be associated with an unexpected event, such as a large

charge off, loss of confidence, or a crisis of national proportion such as a currency crisis.

Effective liquidity risk management therefore helps ensure a bank's ability to meet cash flow

obligations, which are uncertain as they are affected by external events and other agents'

behaviour.

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The Basel Committee on Bank Supervision consultative paper (June 2008) asserts that the

fundamental role of banks in the maturity transformation of short-term deposits into long-term

loans makes banks inherently vulnerable to liquidity risk, both of an institution-specific nature

and that which affects markets as a whole. A liquidity shortfall at a single bank can have system-

wide repercussions and hence liquidity risk management is of paramount importance to both the

regulators and the industry players.

2.4.2.2 Interest Rate Risk

In general, interest rate risk is the potential for changes in interest rates to reduce a bank‘s

earnings or value. Most of the loans and receivables of the balance sheet of banks and term or

saving deposits, generate revenues and costs that are driven by interest rates and since interest

rates are unstable, so are such earnings. Though interest rate risk is obvious for borrowers and

lenders with variable rates, those engaged in fixed rate transactions are not exempt from interest

rate risks because of the opportunity cost that arises from market movements (Bessis, 2010).

According to Greuning and Bratanovic (2009), the combination of a volatile interest rate

environment, deregulation, and a growing array of on and off-balance-sheet products have made

the management of interest rate risk a growing challenge. At the same time, informed use of

interest rate derivatives— such as financial futures and interest rate swaps— can help banks

manage and reduce the interest rate exposure that is inherent in their business. Bank regulators

and supervisors therefore place great emphasis on the evaluation of bank interest rate risk

management, particularly since the Basel Committee recommends the implementation of market

risk– based capital charges.

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Greuning and Bratanovic (2009) posits that banks encounter interest rate risk from four main

sources namely repricing risk, yield curve risk, basis risk, and optionality. The primary and most

often discussed source of interest rate risk stems from timing differences in the maturity of fixed

rates and the repricing of the floating rates of bank assets, liabilities, and off-balance sheet

positions. The basic tool used for measuring repricing risk is duration, which assumes a parallel

shift in the yield curve. Also, repricing mismatches expose a bank to risk deriving from changes

in the slope and shape of the yield curve (nonparallel shifts). Yield curve risk materialises when

yield curve shifts adversely affect a bank‘s income or underlying economic value. Another

important source of interest rate risk is basis risk, which arises from imperfect correlation in the

adjustment of the rates earned and paid on different instruments with otherwise similar repricing

characteristics. When interest rates change, these differences can give rise to unexpected changes

in the cash flows and earnings spread among assets, liabilities, and off-balance-sheet instruments

of similar maturities or repricing frequencies (Wright and Houpt, 1996).

Moreover, an increasing array of options can involve significant leverage, which can magnify the

influences (both negative and positive) of option positions on the financial condition of a bank.

Broadly speaking, interest rate risk management comprises various policies, actions and

techniques that a bank uses to reduce the risk of diminution of its net.

2.4.2.3 Foreign Exchange Risk

This is the risk incurred when there is an unexpected change in exchange rate altering the amount

of home currency need to repay a debt denominated in foreign currency. Bessis (2010) defines

foreign exchange risk as incurring losses due to changes in exchange rates. Such loss of earnings

18
may occur due to a mismatch between the value of assets and that of capital and liabilities

denominated in foreign currencies or a mismatch between foreign receivables and foreign

payables that are expressed in domestic currency. According to Greuning and Bratanovic (2009),

foreign exchange risk is speculative and can therefore result in a gain or a loss, depending on the

direction of exchange rate shifts and whether a bank is net long or net short (surplus or deficit)in

the foreign currency.

In principle, the fluctuations in the value of domestic currency that create currency risk result

from long-term macroeconomic factors such as changes in foreign and domestic interest rates

and the volume and direction of a country‘s trade and capital flows. Short-term factors, such as

expected or unexpected political events, changed expectations on the part of market participants,

or speculation based currency trading may also give rise to foreign exchange changes. All these

factors can affect the supply and demand for a currency and therefore the day-to-day movements

of the exchange rate in currency markets.

2.4.3 Operational Risk

The Basel Accord (2007) defines operational risk as the risk of direct or indirect loss resulting

from inadequate or failed internal processes, people and systems or from external events.

Malfunctions of the information systems, reporting systems, internal monitoring rules and

internal procedures designed to take timely corrective actions, or the compliance with the

internal risk policy rules result in operational risks (Bessis, 2010). Operational risks, therefore,

appear at different levels, such as human errors, processes, and technical and information

technology. Because operational risk is an event risk, in the absence of an efficient tracking and

19
reporting of risks, some important risks will be ignored, there will be no trigger for corrective

action and this can result in disastrous consequences. Developments in modern banking

environment, such as increased reliance on sophisticated technology, expanding retail operations,

growing e-commerce, outsourcing of functions and activities, and greater use of structured

finance (derivative) techniques that claim to reduce credit and market risk have contributed to

higher levels of operational risk in banks (Greuning and Bratanovic, 2009).

In order for the objectives of setting up an operational risk management framework to be

accomplished, it may require a change in the behaviour and culture of the firm. Management

must also not only ensure compliance with the operational risk policies established by the board,

but also report regularly to senior executives. A certain amount of self-assessment of the controls

in place to manage and mitigate operational risk will be helpful.

2.4.4 Strategic Risk

While financial risk and credit risk in banking have been rigorously explored, the risk

management implications of many corporate strategies and the external market and industry

uncertainties have received relatively little attention (Miller, 1992). Slywotzky and Drzik (2005),

define strategic risk as the array of external events and trends that can devastate a company‘s

growth trajectory and shareholder value. Whiles these two authors consider strategic risk as a

sole consequence of external occurrences; other authors look at strategic risk as the current and

prospective impact on earnings and/or capital arising from internal business activities such as

adverse business decisions, improper implementation of decisions, or lack of responsiveness to

industry changes. They therefore consider strategic risk as a function of the compatibility of an

20
organization’s strategic goals, the business strategies developed to achieve those goals, the

resources deployed against these goals, and the quality of implementation. Emblemsvåg and

Kjølstad (2002), also define strategic risk as risk which arises as a firm pursues its business

objectives either by exploiting opportunities and/or reducing threats.

Whichever way this is considered, strategic risk encompasses a variety of uncertainties which are

not financial in nature, but rather credit or operational related caused by macro-economic factors,

industry trends or lapses in a firm‘s strategic choices which affects the firm‘s earnings and

shareholders‘ value adversely. Strategic risks often constitute some of a firm‘s biggest exposures

and therefore can be a more serious cause of value destruction. Unfortunately, as strategic risks

are often highly unpredictable and of different forms, managers have also not yet been able to

systematically develop tools and techniques to address them (Slywotzky and Drzik, 2005). This

is because the more formalised risk management approaches often remain focused on identifiable

exposures and thus less suitable to deal with many of the unexpected economic and strategic

events that characterise contemporary business environment in which strategic risks are

embedded.

Slywotzky and Drzik (2005) attempted to identify significant events which contribute to strategic

risk and categorized them into seven main classes. These include industry margin squeeze, threat

of technology shift which has the possibility of driving some products and services out of the

market, brand erosion, emergence of one-of-a-kind competitor to seize the lion share of value in

the market, customer priority shift, and new project failure and market stagnation. The idea was

to provide a framework for assessing a company‘s strategic risks and develop counter measures

21
to address them. The authors intimate that the key to surviving strategic risks is; knowing how to

assess and respond to them and therefore devoting resources to it. They also advice management

to adjust their capital allocation decisions by applying a higher cost of capital to riskier projects

and to build greater flexibility into their capital structure when faced with riskier competitive

environments. How these risks can be managed is determined by the organizational

characteristics – the strengths and weaknesses. They include communication channels, operating

systems, delivery networks, and managerial capacities and capabilities.

The organization’s internal characteristics must be evaluated against the impact of economic,

technological, competitive, regulatory, and other environmental changes. An effective strategic

risk management approach should embrace both the upside and downside of risk. It should seek

to counter all losses, both from accidents and from unfortunate business judgments, and seize

opportunities for gains through organisational innovation and growth. Seizing upside risk

involves searching for opportunities and developing plans to act on these opportunities when the

future presents them. Countering downside risk on the other hand is done by reducing the

possibility of occurring (probability) and scope (magnitude) of losses; and financing recovery

from these losses (Herman and Head, 2002). Beasley and Frigo (2007) posit that the first step in

strategic risk management is finding a way to systematically evaluate a company‘s strategic

business risk. Thus, strategic risk management begins by identifying and evaluating how a wide

range of possible events and scenarios will impact a business‘s strategy execution, including the

ultimate impact on the valuation of the company.

22
Before management can effectively manage risks that might be identified by various scenario

analyses, they need to define an overriding risk management goal. Stephen Gates (2006) argues

that due to the complexity of the concept of strategic risk, no single quantitative measure will

prove satisfactory in all strategic situations. Because of the distinctiveness of the set of strategic

risk faced by every/each financial institution, regulators have not been able to develop general

guidelines for all the institutions for managing strategic risk. Some consultants and scholars have

come out with some recommendations and guidelines for managing strategic risk. One such

guide is by Slywotzky and Drzik (2005). Building a thorough strategic risk management

framework requires an institution to revise both its internal practices and its external

environment, and to understand how closely the two are connected.

2.5 Credit Risk Management Procedures

Most financial institutions find that loans are the largest and most obvious source of credit risk;

however, other sources of credit risk exist throughout the activities of a bank. Financial

institutions are increasingly facing credit risk in various financial instruments other than loans,

including acceptances, trade financing, foreign exchange transactions, inter-bank transactions,

financial futures, options, bonds, equities, swaps and in the extension of commitments and

guarantees.

Since exposure to credit risk continues to be the leading source of problems in banks world-wide,

banks and their regulators should be able to draw useful lessons from past experiences. Banks

should now have a keen awareness of the need to identify measure, monitor and control credit

risk as well as to determine that they hold adequate capital against these risks.

23
The Basel Committee’s capital adequacy guideline aims to encourage global banking supervisors

to promote sound practices for managing credit risk. These include:

 Establishing an appropriate credit risk environment;

 Operating under a sound credit-granting process;

 Maintaining an appropriate credit administration, measurement and monitoring process;

and

 Ensuring adequate controls over credit risk.

Although specific credit risk management practice may differ among banks depending upon the

nature and complexity of their credit activities, a comprehensive credit risk management

strategies should address all these issues. Implementation of the credit risk management program

should also be applied in conjunction with sound practice related to the assessment of asset

quality, the adequacy of provisions and reserves, and the disclosure of credit risk.

2.5.1 Credit Criteria

Credit criteria are factors employed to determine a borrower’s creditworthiness or ability to

repay debt. These factors include income, amount of existing personal debt, number of accounts

from other credit sources, and credit history. A lender is free to use any credit-related factors in

approving or denying a credit application so long as it does not violate the equal credit protection

of the various banks in Ghana prohibiting credit discrimination.

(Swarens, 2008) suggested that, the most pervasive area of risk is an overly aggressive lending

practice. It is a dangerous practice to extend lending term beyond the useful life of the

corresponding collateral. Besides that, giving out loans to borrowers who are already overloaded

with debt or possess unfavorable credit history can expose banks to unnecessary default and

24
credit risk. In order to reduce these risks, banks need to take into consideration some common

applicants’ particulars such as debt to income ratio, business history and performance record,

credit history, and for individual loan applicants their time on the job or length of time at

residence.

2.5.2 Credit Culture

A bank’s credit culture is the unique combination of policies, practices, experiences, and

management attitude which defines the lending environment and determines the lending

behavior acceptable to the bank. A credit culture is the glue that holds credit related issues

together. More broadly, credit culture is the system of behavior, beliefs, philosophy, thought,

style, and expression relating to the management of the credit function. It consists of a policy that

guides credit ethic, a practice that drives lending and an audit that protects assets and credit

mechanism. (Mueller, 2001), stressed the significance of installing a sound credit culture in order

to track banks’ lending strategy and objectives.

2.5.3 Training on Credit Risk

This refers to the acquisition of knowledge, skills, and competences as a result of the teaching of

vocational or practical skills and knowledge that relates to specific useful skills. Training and

development in the field concerned with workplace learning to improve performance. ( Swarens

2008) believes that a fully trained consumer loan officer should have superior presentation skills,

good knowledge of consumer protection law to reduce the risk of committing a discriminatory

mistake. Loan officers should also have the ability to identify remedies to a problem to ensure

that customer received the best type of advice and service.

25
In another study by (Morsman 2009), it concluded that bank managers must learn from past

mistakes and must be equipped with skills and knowledge to master the fundamentals of loan

administration to avoid the stormy seas of imprudent lending.

2.5.4 Diversification

Diversification in banking involves spreading investments into a broader range of financial

services or loans: business, personal, credit cards, mortgage, auto and educational loan.

Diversification reduces both the upsides and downside potential and allows for more consistent

performance under a wide range of economic conditions. Diversifications can be performed

across products, industries and countries.

According to (Sanford, 2000), diversification can reduce risk rapidly with diversification of

investment at no cost in expected profits. In other words, the business enterprise that diversified

is more likely to be profitable. Total risk of loan provision fall as a variety of loan products and

borrowings from different industries, assuming the correlation between markets is not perfect.

This therefore concludes that, regulation provides safety and ensures soundness of the banking

system.

2.5.5 Risk Mitigation

Risk mitigation encompasses a variety of techniques for loss prevention, loss control, and claims

management. A risk mitigation program can prevent losses and reduce the losses while creating a

safer environment for businesses. Banks use a number of techniques to mitigate the credit risks

to which they are exposed. A loan exposure may be guaranteed by a third-party or a bank even

26
purchase credit derivatives to offset various forms of credit risk. A study by (Bloomquist, 2007)

reckons that loan portfolio risk can be reduced with an effective credit review of applicants and

selective asset backing. When creditors have extensive rights to reposes’ collateral assets, there

is stronger possibility that they can reduce their risks of loss on one hand and borrowers will be

more responsible to pay when their assets are at stake.

2.5.6 Interest Rate Management Procedures

The area of interest rate risk is the second area of major concern and on-going risk monitoring

and management. Here, however, the tradition has been for the banking industry to diverge

somewhat from other parts of the financial sector in their treatment of interest rate risk. Most

commercial banks make a clear distinction between their trading activity and their balance sheet

interest rate exposure.

Investment banks generally have viewed interest rate risk as a classic part of market risk, and

have developed elaborate trading risk management systems to measure and monitor exposure.

But, in fact, these trading risk management systems vary substantially from bank to bank and

generally are less real than imagined. In many firms, fancy value-at-risk models, now known by

the acronym VaR (value at risk), are up and running. This notion of Earnings at Risk, EaR, is

emerging as a common benchmark for interest rate risk. However, it is of limited value as it

presumes that the range of rates considered is correct, and/or the bank's response mechanism

contained in the simulation is accurate and feasible.

2.5.8 Foreign Exchange Risk Management Procedures

27
In this area there is considerable difference in current practice. This can be explained by the

different franchises that coexist in the banking industry. Most banking institutions view activity

in the foreign exchange market beyond their franchise, while others are active participants.

Currencies are kept in real time, with spot and forward positions marked-to-market. As is well

known, however, reporting positions is easier than measuring and limiting risk. Here, the latter is

more common than the former. Limits are set by desk and by individual trader, with monitoring

occurring in real time by some banks, and daily closing at other institutions.

2.5.9 Liquidity Risk Management Procedures

Two different notions of liquidity risk have evolved in the banking sector. Each has some

validity. The first, and the easiest in most regards, is a notion of liquidity risk as a need for

continued funding. The counterpart of standard cash management, this liquidity need is forecast

able and easily analyzed. Yet, the result is not worth much. In today's capital market banks of the

sort considered here have ample resources for growth and recourse to additional liabilities for

unexpectedly high asset growth.

The liquidity risk that does present a real challenge is the need for funding when and if a sudden

crisis arises. Standard reports on liquid assets and open lines of credit, which are germane to the

first type of liquidity need, are substantially less relevant. Rather, what is required is an analysis

of funding demands under a series of "worst case" scenarios. These include the liquidity needs

associated with a bank-specific shock, such as a severe loss, and a crisis that is system-wide. In

each case, the bank examines the extent to which it can be self-supporting in the event of a crisis,

and tries to estimate the speed with which the shock will result in a funding crisis.

28
 CHAPTER THREE

METHODOLOGY

3.0 Introduction

This chapter deals with the details of the research methods employed during this study. Emphasis

is placed on research design, target and study population, sampling size and sample technique.

Other areas covered here include the administration of the research instrument, method of data

collection; methods for data analysis/Statistical Procedures as well as a discussion on the key

problems encountered in the data collection.

3.1 The Research Design

This chapter discusses the various methods used in carrying out the research right from sampling

of the study communities through to the collection, presentation of data and findings. It relies on

multiple sources of evidence and is used to generalize findings in other spheres of study based on

theoretical propositions. It also allows for an empirical inquiry that investigates a phenomenon

within its real-life context and it is based on an in-depth investigation of a single individual,

group, or event.

Quantitative and qualitative approaches would be used. These approaches helped in appreciating

the usefulness of existing literature in the study and the relevant contribution they make in

unveiling in-depth information from respondents in their own language and environment. The

choice of sample design and how well it mimics the population had an impact on the results. The

closer the sample design is to the population characteristics the more precise the estimate from

29
the sample. The research therefore matched the calculation of the results from the sample to the

design of the sample.

In addition, this approach aims at gathering sufficient data that can be used to describe and

interpret what exists at a particular time. It investigate into the conditions that exist, practices that

prevail, points of view that are held, processes that are going on, influences being felt, and trends

that are developing. The purpose of such a social investigation was to gather relatively limited

data from a relatively large number of cases at a particular time so that information about the

status quo can be arrived at (Lamnek, 2005). Descriptive surveys are not free from shortcomings.

As pointed out by Seifert & Hoffnung, (1994), it is sometimes difficult to ensure the clarity of

the questions to be answered, unless pains are taken to clearly word the questions. This

shortcoming would be addressed by using the questionnaire to collect data exclusively from the

very well educated samples. This will be conducted in the form of administering questionnaires

to respondents to gather primary data for the research project. Tables and graphs would be used

to summarize the responses to the questionnaires to create a picture of what the respondent think

or report doing.

3.2 Sample Size and Techniques

Currently in Ghana, there are 28 banks in operation. For the convenience of the researchers

Access Bank (Ghana) Limited would be used as the target population from which a sample

of fifty questionnaires would be administer to the targeted respondents. This will also enable the

researchers to gather enough data for the completion of the work since one of the researchers is a

staff of the Bank. With reference to the Sampling techniques, both probability and non-

30
probability sampling techniques would be used. Twumasi (2001) stresses that the first step in the

selection of a sample is to consider sampling design. In sampling design, characteristics of the

population are vividly indicated. The sampling design for this study comprises the employment

of the stratified sampling, purposive sampling and sampling selection. This would enable the

researcher to have an idea about the existing social situation. An in-depth knowledge about the

parameters of the population helps the investigator to determine the type of sampling design.

3.2.1 Stratified Sampling

The stratified sampling is most suitable for selection and disaggregating variables for any useful

study. According to Kumar (1999), the advantage of stratified sampling is that it enables you to

reduce the variability and heterogeneity of the study population with respect to characteristics

that have a strong correlation with what you are trying to ascertain and this enables the

researcher to achieve accuracy. It also helped to improve upon the representativeness of the

sample.

3.2.2 Purposive Sampling

Purposive sampling would be used under the non-probability sampling to collect data from the

bank and other banks in line of the research question. The rationale behind employing this

judgmental sample type is to identify the various financial institutions that have specialized

knowledge of risk management and will be willing to share.

31
3.3 Methods of Data Collection

Questionnaires would be used as the main tool for data collection. This instrument would be used

to elicit information from individuals as well as staff in Credit Risk Unit of Access Bank (Ghana)

Limited. These are busy people who could not have been subjected to about an hour of

interview. Besides, they were men and women well educated enough to offer information

without interference from the researchers. Data collected would be analyzed and interpreted

using both descriptive and analytical approach. Other reasons why the questionnaire was found

the most appropriate tool were that besides its potential to produce information from many

respondents within a short time, it is quite inexpensive in terms of time. It can also be completed

at the respondent’s convenience.

Another tool used to collect data would be the interview guide. At the grassroots level, most of

the beneficiaries of credit facilities were found not literate enough to independently respond to

questionnaires, so data would be collected from them through the face-to-face interview mode.

3.4 Method of Data Analysis

Both statistical and descriptive techniques would be employed in the data analysis. This is

because the data for the research included qualitative and quantitative data. The various variables

would be arranged in an ascending or descending order for easy analysis and would be organized

in paragraphs for detail examinations and further discussions. Also, combing was employed in

the analysis to unearth existing evidence to address the objectives of the study.

32
3.5 Profile of Access Bank (Ghana) Limited

Access Bank (Ghana) Limited, one of the leading banks in Ghana, was incorporated in May

2009 as a private limited liability company. The Bank is licensed to carry out universal banking

services and provides a comprehensive bouquet of financial and non-financial services to

individual and corporate customers. The Bank is part of the Access Bank Group, made up of nine

(9) African markets, spanning sub-Saharan’s three monetary zones and the United Kingdom. The

Bank has significant shareholding from Ghanaian investors as well as diversified shareholding

from individual and foreign institutional investors including Access Bank Plc, a pre-eminent

financial services institution ranked amongst the Top 10 Banks in Africa.

With over 39 branch offices and 43 ATMs spread across the country, Access Bank Ghana has

leveraged its geographical network to showcase its expertise in Treasury, Cash Management,

Trade Finance and Technology driven banking solutions. The Bank is also leading the way with

investments in key sectors of the economy including Telecommunications, Oil and gas,

Manufacturing and Agriculture.

Some of the key indices of the Bank as at March 5, 2012, include:

Total Assets: GHC 929,557 Million

Paid-Up Capital: GHC 118,296 Million

Liquidity ratio: 62.65%

As one of the most capitalized banks in the industry, the Bank is also facilitating infrastructural

development through the provision of necessary funding and credible partnership with the

Government and stakeholders in the economy.

33
The Bank's growing profile as a leading bank in Ghana is further underscored by its commitment

to industry growth and sustainability as evidenced by its pioneering role in industry redefining

initiatives; particularly in the bonds trading market and responsible business practices.

Access Bank Ghana maintains a robust risk management framework and technology

infrastructure that guarantees customers and other stakeholders superior returns on a daily basis.

Its chain of customer focused products and services ensure that the Bank is able to develop

banking solutions that meet the needs of multiple stakeholders simultaneously. This approach

guarantees mutually beneficial outcomes through the value chain of Large Corporate

organisations including subsidiaries, partners, suppliers, distributors and employees.

The Bank has business relationships and partnerships with leading international and multi-lateral

organizations such as Visa International, The Netherlands Development Finance Company

(FMO), Accenture and KPMG.

Access Bank Ghana has continuously displayed a strong commitment to community

development by leveraging its people and financial resources to invest in Education, Health, and

the Arts as part of its Corporate Social Responsibility. More than 80% of staff are involved in

voluntary community programmes annually, through the Access Bank Employee Volunteering

Programme (EVP).

In 2010, Access Bank Ghana received the ‘Most Socially Responsible Bank’ Award at the 10th

Ghana Banking awards ceremony. The Bank also received awards in ‘Agricultural Financing’

and was the First Runner-up in ‘Financial Performance’ categories.

Access Bank (Ghana) Limited management team is made up of a team of accomplished and

professional bankers with over decades of experience.

34
The philosophy of the Bank is as follows:

3.5.1 MISSION: To be the most respected bank in Africa.

3.5.2 VISION: Setting standards for sustainable business practices that; unleash the

talents of our employees, deliver superior value to our customers and provide

innovative solutions for the markets and communities we serve.

3.5.3 CORE VALUES

 Leadership

 Excellence

 Empowered employees

 Passion for customers

 Professionalism

 Innovation

35
 CHAPTER FOUR

DATA ANALYSIS AND PRESENTATION

4.0 Introduction

This chapter presents the analysis of data which were collected from the research site at Access

Bank (Ghana) Limited, in line with the topic “Credit risk management and its impact on the

performance of Banks in Ghana”. A total of fifty (50) questionnaires were distributed to the

various respondents.

4.1 Gender of respondents

The gender of the respondents was determined. This is indicated in table 1 below.

Table 1: Gender of respondents

Variable Frequency Percentage

Male 29 58

Female 21 42

Total 𝟓𝟎 𝟏𝟎𝟎

Source: field data, 2013

Table 1 illustrates the gender of the respondents. Data gathered indicates that there were more

male respondents (29, 58%), compare to the female counterparts (21, 42%). It therefore

concludes that the male employees are very dominant at the Credit Risk Department of Access

Bank (Ghana) Ltd.

36
4.2 Age distribution of respondents

The age distribution of the respondents was determined. Table 2 displays the age distribution of

the respondents.

Table 2: Age distribution of respondents

Variable Frequency Percentage

20 – 30 26 52

31 – 40 15 30

41 – 50 9 18

51 – 55 0 0

Total 𝟓𝟎 𝟏𝟎𝟎

Source: field data, 2013

Table 2 displays the age distribution of the respondents. Data gathered from the respondents

indicates that majority of the respondents are between the ages of 20 – 30 years. This was

represented by 26 respondents representing 52%. 15 respondents representing 30% were also

between the ages of 31 – 40 years. In addition, 9 respondents representing 18% were between the

ages of 41 – 50 with no staff in the Credit Risk Department of the Bank between the ages of

51 – 55 years.

37
4.3 Level of education

The educational level of the respondents were also determined

Figure 1: Educational level of respondents

OTHERS, 0%

ACCA , 12% HND, 10%

MASTERS', 20%

BACHELORS
DEGREE, 58%

Source: field data, 2013

Figure 1 illustrates the educational level of respondents. Based on the data gathered from the

respondents, 10% of the respondents hold an HND certificate. In addition, majority of the

respondents holds a Bachelors Degree Certificate; this was represented by 58%. 20% of the

respondents also hold a Master’ Degree and 12% have a Professional Certificate in ACCA. It

therefore concludes that all the respondents are well educated with majority of them with

Bachelors Degree and therefore they can provide the researchers sufficient data on Credit Risk

Management and its impacts on the bank performance.

38
4.4 Years of experience with bank

The number of years in which the respondents had worked with the bank was determined. This

was illustrated in figure 1 below

Figure 2: Years of experience with bank

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%
Less than 1 year 1-2 years 3-5 years Above 5 years

Source: filed data (2013)

Figure 1 above shows the percentage of the years of experience the respondents had working

with the bank. The researchers asked this question because they wanted to know how

experienced the respondents were in terms of banking sector. Based on the data gathered from

the respondents, majority of the respondents has worked with the bank for more than five years;

this was represented by 40%. 35% of the respondents have also worked with the bank between

39
3-5 years. Moreover, 15% and 10% have worked with the bank between 1-2 years and less than

1 year respectively. This shows that the respondents are in a good position to have data on the

view of Credit Risk Management and its impacts on the performance of the bank

4.5 Expectation for effective risk management at Access Bank (Ghana) Ltd

The expectation of risk management at Access Bank (Ghana) Ltd was determined. This was

illustrated in figure 2 below

Figure 3: Expectation of risk management at Access Bank (Ghana) Ltd

40%

35%

30%

25%

20%

15%

10%

5%

0%
Reduce financial loss Improve Improve decision Improve resource
communication with making allocation
stakeholders

Source: field data (2013)

Figure 2 illustrates the expectation from effective credit risk management at Access Bank

(Ghana) Ltd. Data gathered from the respondents indicates that effective improvement of

decision making can improve the strategies to effective credit risk management. This was

illustrated by 35% of the respondents. 25% also said that reducing financial loss serves as a

40
source to credit risk management. Furthermore, 25% also added that improving resource

allocation is also an effective way to reducing credit risk management. Again, 15% also added

that effective communication with stakeholders is another way of reducing credit risk

management.

4.6 Responsible individuals to establish credit risk management policy at Access Bank

Table 3 illustrates the individuals with the organization who are responsible in establishing the

procedures to credit risk management. The results are indicated in the table below

Response Frequency Percentage

Chief Executive Officer − −

Head - Financial Control Unit 2 4

Board/committee 45 90

Executive Management Committee 3 6

Head – Internal Control Unit − −

staff − −

Other − −

Total 50 100

Source: field data (2013)

Table 2 illustrates the kind of individuals who are responsible in establishing credit policy

management at Access Bank (Ghana) Ltd. Data gathered from the respondents indicates that the

41
board/committee is responsible for the policy drafting at Access Bank. Some respondent also

stated that the Head of Financial Control Unit of the bank is responsible for establishing the

policy. Furthermore, others say it is the Executive Management Committee’s responsibility. This

was illustrated by 4%, 90% and 6% for Head - Financial Control Unit, Board/committee and

Executive Management Committee respectively

The surveys show that respondents identified commitment and support from top management as

the most important. Top-level management responds to business processes and manages credit

risk. Most of the organizations believe that it is the responsibility of the Board of Directors or

Committee and Executive Management team to establish credit risk management. Top

management decides the objectives and strategies for organizational credit risk management

activities, mission and overall objectives.

The respondents indicated that there are many ways in which top management can support risk

management policy as showed in the table 2. They set up a particular credit risk management

teams, regularly revision of risk management plans, clear to allocate credit risk management

responsibilities, strictly obey in credit risk management policy, listen a problems from employees

and allocate appropriate resources. Most of the organizations have a policy to support the

development of credit risk management. The benefit of top management support is effective

decision-making to manage risks .This is one of the expectations from the respondents.

42
4.7 Does Access Bank (Ghana) Ltd have credit risk management guideline or policy?

Respondents were asked to indicate whether the bank has a credit risk management policy. The

results are display in table 3 below

Table 4: Availability of credit risk management policy

Response Frequency Percentage

Yes 48 96

No 2 4

Total 50 100

Source: field data (2013)

Table 3 illustrates the availability of credit risk management policy at Access bank. According to

the data gathered from the respondents, 48 respondents representing 96% stated that the bank has

a credit risk management policy and 2 respondents representing 4% also added that the bank

does not have credit risk management policy.

Organizational structure involves an organization‘s internal pattern in relationships, authority

and communication. Structure is comprised of formal lines of authority and communication, and

the information as well as data that flow along these lines (Stank et al, 1994). Structure and

processes of the organizations are most effective when their design function match their

environment and impact to organization‘s strategies (Hunter, 2002). The respondents agree that

their organization have a documented guideline or policy for credit risk management.

43
4.8 Does the guideline or policy support the goals and objectives of credit risk

management?

The below table illustrates whether the policy supports the objectives and goals of credit risk

management. The results are as follows

Table 5: Does the guideline support the goals and objectives of credit risk management

Response Frequency Percentage

Yes 48 96

No 2 4

Total 50 100

Source: field data (2013)

Respondents were asked to indicate whether the available credit risk supports the objectives and

goals of credit risk management. Data gathered from the respondents concluded that the policy

supports the objectives and goals of credit risk management. 48 respondents representing 96%

stated that the objectives and goals of the credit risk management are supported by the credit

risk. In addition, 2 respondents representing 4% also stated that the objectives do not supports

the goals and objectives of credit risk management.

Majority of the respondents believe that the guideline supports the goals and objectives of risk

management. As Hasanali (2002) and Department of State and Regional Development (2005)

argue, one of the most important aspects of effective risk management is organizational

structure. Organizational structure provides concepts, guidelines, direction and support to

44
employees that conducted by the steering committee. The respondents understand the risk

management guideline or policy.

4.9 Do you understand the credit risk management guideline or policy?

Table 6 illustrates whether respondents understand the credit risk management guideline

or policy.

Response Frequency Percentage

Yes 48 96

No 2 4

Total 50 100

Source: field data (2013)

Data gathered from the respondents confirm that, 48 respondents representing 96% understand

the policy of the bank’s credit risk management and 2 respondents representing 4% does not

understand the credit risk management policy.

45
4.10 How often do you think the bank should change its policies to manage credit risk?

Figure 4: Number of times the bank changes its policies in credit risk management

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
Once per year Once per two years Once in more than two years

Source: field data (2013)

In table 3, most of the respondents (85%) replied that the bank should change its guidelines or

policies to manage credit risks once per year. 10% of the respondents replied that bank should

change its guidelines or policies once every 2 years and changing once in more than 2 years had

5%. That means that most of the respondents think the bank should change the guidelines or

policies to manage credit risks once per year.

Because the financial world is always in fluctuation, Carey (2001) suggests that organizational

structure must be reviewed regularly and adjusted to adapt to changing financial environments.

All of the respondents stated that the bank should change its guidelines or policies in order to

manage credit risks. Most of the organizations implement changes and review their

organizational structure every year. Moreover, Grabowski and Roberts (1999) suggest that risk

46
management is primarily associated with the fluidity of organizational structures. It is a flexible

approach to respond s to different ways and respond quickly in the face of changing conditions.

4.11 Do the bank have policy to support the development of credit risk management in the

future?

Respondents were asked to indicate whether the bank has the policy to develop the credit risk

management in the future. The results are indicated the figure 4 below

Figure 5: A policy to support the development risk management in future

No, 4%

Yes , 96%

Source: field data (2013)

Figure 4 illustrates whether the bank has a policy in place to ensure the development of credit

risk management in the future. Based on the data gathered from the respondents, 96% said yes

and only 4% said no. This means that, the bank has in place a policy to ensure the development

of the risk management in the future.

47
4.12 Does the bank offer training for employees on Credit risk Management?

Respondents were asked to indicates whether the bank offer employees training on Credit Risk

Management. The data is represented in table 6 below

Table 7: Does the bank offer training for employees on Credit risk Management?

Response Frequency Percentage

Yes 50 100

No − −

Total 50 100

Source: field data (2013)

The researchers also asked yes or no question about training courses for employees. The results

show that 100% of the respondents have confirmed the bank always train them. This means the

bank plays a lot of emphasis on training its staff on credit risk management.

Risk management becomes a part of good business practice and should include training staff

appropriately. The main reason for an education and training program is to ensure that the

members are comfortable with the system and increase the expertise and knowledge level of the

members. Most companies offer training courses for new employees. The purpose of training is

to improve knowledge, skills and attitudes that in turn increase confidence, motivation and job

satisfaction (Fill and Mullins, 1990).

48
4.13 How often does the bank provide credit risk management training courses?

Figure 5: How often does the bank provide credit risk management training courses

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
1 times per year 2 times per year More than 2 times per year

Source: field data (2013)

In figure 5,The respondents were asked about the frequency of credit risk management training

in their organizations. The results show that most of the respondents (82%) have a credit risk

management training course one times per year. 8% have a credit risk management training

course two times per year and, more than 2 times per year percentages, 10%.

Since the purpose of training is to improve knowledge, skill and attitudes to job satisfaction it is

better to know how frequent the organizations provide training for employees. According to

figure 5, it can be concluded that the organizations give training to employees’ one times per

year.

49
4.14: How does Access Bank effectively communicate to reduce credit risk?

Respondents were asked to identify how the bank effectively communicates the reduction in

credit risk. The responses are as follows

Figure 6: How does Access Bank effectively communicate to reduce credit risk?

40%

35%

30%

25%

20%

15%

10%

5%

0%
Creating clear and Developing Fast Regularly Creating and
trustworthy understanding communication communicating maintaining a clear
information between between among communication
management teammanagement team management and
and employee and customers staff

Source: field data (2013)

In figure 6, the researchers would like to know how the bank effectively communicate in order to

reduce credit risk. In this question, the respondents could choose more than one answer. The

results show that the most common way of communicating effectively to reduce credit risk is

developing understanding between management team and employee, with 35% of the

respondents picking this answer. It means that most of the respondents think that developing this

understanding is a first priority for organizations. The next results were regularly communicating

among management and staff with 10%. Creating clear and trustworthy information and fast

communication between management team and customers followed with 28%and 21%

50
respectively. The lowest ranking was creating and maintaining a clear communication, with 9%.

This means that Creating and maintaining a clear communication is not a common way of

communicating to reduce risk and is outranked by creating understandable and clear information.

The responses believed that developing understanding between management team and employee,

regularly communication between management and staff, create information clear and

trustworthy, maintaining clear to communication and fast and sharp communication in

organization all is support effective communication in risk management procedures.

The challenges that the respondents‘ face in credit risk management lack of experience because it

is a newly emerged department, lack of technology to manage the portfolio data, implementation

of policies at the grass root level, miss interpretation of policies, unknowing the exact feature of

customers especially individual borrower, effects of changing in government policy, inadequate

human capacity, poorly organized of industries to evaluate their worthiness, problem of collateral

registration, low level of awareness to ward credit risk management, bad attitudes of the staffs

towards satisfying the need of their organizations, unable to get full information about customer

from external sources, the department is under staffed, use of traditional or simple measurement

tools, and absence of relevant information on time.

In addition the researcher identifies the major kinds of tools or methods used to mange credit

risks. The tool that the banks used to manage their credit risks includes:

51
4.15 Does the bank have established procedure for keeping up-to-date and informed with

changes in regulation

Respondents were asked to indicate whether the bank have established procedure for keeping up-

to-date and informed with changes in regulation. Data gathered are illustrated in table 7 below

Table 7: Does the bank have established procedure for keeping up-to-date and informed

with changes in regulation

Response Frequency Percentage

Yes 48 96

No 2 4

Total 50 100

Source: field data (2013)

The results from table 7 shows that 96% of the respondents answered ‘Yes‘, the bank does have

established procedures for keeping up-to-date and informed with changes in regulations. But 4%

do not. From the table it can be concluded that the organization is in the way to provide training

to its employee for the changes that will happen in the regulations of credit risk management.

The ability to respond to changing conditions in an organization‘s operation is related to a range

of activities including the development of risk training courses and involvement of staff in

responding to an early warning system (Carey, 2001).

52
4.16 Effect of Credit Risk Management

Respondents were asked to indicate the effect of credit risk management. Data gathered are

illustrated in table 7 below

Table 7: Does the bank have established procedure for keeping up-to-date and informed

with changes in regulation

Figure 7: Effects of Credit Risk Management

Strongly disagree Disagree Agree Strongly Agree

77%
80% 73%
66%
70%
60%
60% 53%
50%
38%
40%
28%
30%
21%
20% 10%
10% 10% 11% 10%
6% 6%6% 6%
10% 3% 3% 3%
0%
Improvement Cost reduction Retention of Reduction in Prevention of
in revenue good clients loan Default fraud

(Source: field data (2013)

From Figure 7 above, 6% of the respondents strongly disagreed that credit risk management

reduces cost whiles 6% of respondents also disagreed that credit risk management reduces cost.

53
On the other hand, 60% of respondents agreed that credit risk management reduces cost whiles

28% of respondents also strongly agreed that credit risk management reduces cost.

Additionally, 3% of respondents, strongly disagreed that credit risk management increases

retention of good clients whiles 10% of respondents, disagreed that credit risk management

increases retention of good clients. On the other hand, 66% of respondents also agreed that credit

risk management increases retention of good clients, whiles 21% of respondents also strongly

agreed that risk management increases retention of good clients.

When asked whether risk management reduced loan default, 10% of respondents strongly

disagreed whiles 6% agreed that credit risk management reduces loan default. However, 75% of

the respondents agreed that credit risk management reduced loan default whereas 11% of

respondents also strongly agreed that credit risk management reduced loan default.

When the question, do you agree that risk management prevents fraud was asked, 10% of

respondents strongly disagreed whiles another 10% disagreed. However, 77% of respondents

agreed that credit risk management prevents fraud where as 3% strongly agreed.

From the result it is clear that credit risk management improves the financial performance of

Banks. This is because credit risk management improves revenues and reduces cost which results

in increase in profit. Also credit risk management helps the banks to do business with good

clients which results in quality loan portfolio. credit risk management prevents staff from

engaging in fraudulent activities. All of these benefits of credit risk management results in

effectiveness of banks performance.

54
 4.2 Analysis of Secondary Data

The researcher used four (4) main tools of performance measures as a benchmark to assess the

performance of Access Bank (Ghana) Ltd vis-à-vis credit risk management for the period ending

February 2013 as per table 8 below. The measuring tools of Access Bank performance for the

above stated period are as follows: Current Loan; Doubtful Debt; Non Performing Loans; and

loss/ Non Performing Loans as well as Capital Adequacy Ratio.

Table 8 below provide details of the above measuring tools (performance indicators)

QUANTITATIVE DISCLOSURES

2012 2011

Capital Adequacy Ratio 22.54% 45.59%

Non- Performing Loans 25.63% 5.06%

(Source: Access Bank Financial Statement Report)

55
LOAN CLASSIFICATION OF ACCESS BANK AS AT FEBRUARY 2013

ACCESS BANK INDUSTRY TOTAL ACCESS BANK %

(GH¢) (GH¢)

2.13 %
CURRENT 240,461,987 11,280,933,155

7.33 %
OLEM 32,645,464 445,247,930

2.56 %
SUB-STANDARD 10,913,099 426,839,074

7.11 %
DOUBTFUL 22,629,668 318,163,081

4.77 %
LOSS 51,789,559 1,084,887,836

2.64 %
TOTAL 358,439,777 13,556,071,076

5.19 %
Past Due (ABS) 117,977,790 2,275,137,920

Past Due % 32.9% 16.8%

4.66 %
NPL (ABS) 85,332,326 1,829,889,991

NPL (%) 23.8% 13.5%

Loss/NPL (%) 60.7% 59.3%

(Source: Bank of Ghana Loan Report)

56
4.2.1 Current Loans to Industry Total

With a total of 2.13% for the period as at February 2013, it was detected that Access Bank had

experienced certain undulating tendencies in its current loan performance in the market. This is

attributed to the good policy of the bank on customer advances and for that matter a reflection on

the good credit risk management policy of the bank by not giving too much credit facilities to

customers

4.2.2 Doubtful Loans to Industry Total

For the period under review, the bank’s doubtful loan as against the industry total is 7.11%. This

means Access Bank has made provision for doubtful debt very high to take care for unforeseen

circumstances leading to default.

4.2.3 Loss/Non-Performing Loans (NPLs) to Industry Total.

A total of 60.7% indicates loss per Non- Performing Loan of Access Bank (Ghana) limited as

against the industry of total of 59.3%. this means that Access bank is almost competing with the

total amount of Loan loss per Non – Performing loan of the banking industry.

4.2.4 Non-Performing Loans (NPLs) to Industry Total

The Non-Performing Loans (NPLs) ratio as at the month ending February 2013 indicated 23.8%

whilst the industry total is 13.5% for the same period. However for the year 2011 and 2012, the

Non-Performing Loans (NPLs) ratio was 5.06% and 25.63% respectively. This increase was as

result of the takeover of Intercontinental Bank by Access Bank in the year 2012.

57
 4.2.5 Capital Adequacy Ratio

From table 8 above, the bank had Capital Adequacy Ratio of 45.59% in 2011 and this reduced to

22.54% in 2012. This means that there was a significant drop in the Capital Adequacy level of

the bank by 23.05%

Table 9: Analysis of Financial statement and statement of comprehensive Income

ANALYSIS OF FINANCIAL STATEMENT AND STATEMENT OF COMPREHENSIVE

INCOME AND LOANS AND ADVANCES TO CUSTOMERS

PERCENTAGE TO

PERFORMANCE ANALYSIS LOANS AND ADVANCES

2012 2011 2012 2011

(GH¢’000) (GH¢’000) % %

- -
LOANS AND ADVANCES 274,373 76,539

26.61% 21.72
NET INTEREST INCOME 73,001 16,625

12.62 11.00
PROFIT AFTER TAX 34,631 8,418

5.46 33.85
CREDIT RISK RESERVED 14,993 2,591

(Source: Access Bank Financial Statement Report)

58
4.2.6 Net Interest Income against Loans and advances

From table 9 above, the percentage of Net Interest Income to total loans and Advances to

customer of the bank was 26.61 and 21.72 in 2012 and 2011 respectively. This means that there

was a significant increase of Loans and Advances to customers hence a reflection in the Net

Interest Income.

4.2.6 Profit after Tax as a percentage of Loans and Advances

From table 9 above, Profit after tax of the bank as against Loans and Advances granted to

customers was increased by 1.62% in 2012. It was revealed that there was no significant increase

over the two periods under review.

4.2.6 Credit Risk Reserved To Loans and Advances

The Credit Risk Reserved of the bank as compare to Loans and Advances granted to customers

was reduced from 33.85% in 2011 to 5.46% in 2012. This means the bank reduced its reserves

for Credit Risk as against total Loans and Advances granted to customers for the period under

review

4.3 Loan portfolio management: The need for credit portfolio management emanates from the

necessity to optimize the benefits associated with diversification and to reduce the potential

adverse impact of concentration of exposures to a particular borrower, sector or industry.

Portfolio management shall cover bank-wide exposures on account of lending, investment, other

financial services activities spread over a wide spectrum of region, industry, size of operation,

technology adoption, etc. There should be a quantitative ceiling on aggregate exposure on

59
specific rating categories, distribution of borrowers in various industries & business group. Rapid

portfolio reviews are to be carried on with proper & regular on-going system for identification of

credit weaknesses well in advance. Steps are to be initiated to preserve the desired portfolio

quality and portfolio reviews should be integrated with credit decision-making process.

4.4 Loan review: Multi-tier Credit Approving Authority, constitution wise delegation of powers,

sanctioning authority‘s higher delegation of powers for better-rated customers; discriminatory

time schedule for review / renewal, Hurdle rates and Bench marks for fresh exposures and

periodicity for renewal based on risk rating.

4.5 Credit Audit/Loan Review Mechanism: This should be done independent of credit

operations, covering review of sanction process, compliance status, review of risk rating, pick up

of warning signals and recommendation for corrective action with the objective of improving

credit quality. It should target all loans above certain cut-off limit ensuring that at least 30% to

40% of the portfolio is subjected to LRM (loan review mechanism) in a year so as to ensure that

all major credit risks embedded in the balance sheet have been tracked and to bring about

qualitative improvement in credit administration as well as Identify loans with credit weakness.

Determine adequacy of loan loss provisions. Ensure adherence to lending policies and

procedures. The focus of the credit audit needs to be broadened from account level to overall

portfolio level. Regular, proper & prompt reporting to Top Management should be ensured.

Credit Audit is conducted on site, i.e. at the branch that has appraised the advance and where the

main operative limits are made available.

60
4.6 Risk Rating Model: Set up comprehensive risk scoring system on different point scale.

Clearly define rating thresholds and review the ratings periodically preferably at half yearly

intervals, to be graduated to quarterly so as to capture risk without delay. Rating migration is to

be mapped to estimate the expected loss.

In addition to the above tools the banks also use collecting data from internal and external

sources, evaluation of collateral, identifying the risk with the source, communicating with

customers, and etc as a tool for credit risk management.

61
 CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

5.0 Introduction

A study of the data collected and the examination of the outcome revealed certain significant

concerns. The focus of this research was to highlight the major findings that were discovered.

These findings were outlined in direct response to the objectives of the study which sought,

among other things, to analyze bank credit risk management and its impacts on the banks

performance. Also captured in this chapter includes the summary of conclusion and

recommendation base on the research topic.

5.1 Summary of findings

Credit Risk management tries to decrease the negative outcomes of uncertainty, and this could be

done in different approaches. First, there is traditional risk management, which handles risk in

different separate classes. Further, there is enterprise risk management (ERM), which uses a

holistic approach. This approach bundles all the risks and only hedges or insures the residual

risks. ERM also focuses on non-financial risks, whereas traditional risk management only

focuses on financial risks.

ERM could still be beneficial for banks, although they do not face much non-financial risk.

However, by taking a holistic approach, different risks could better be managed and a better

understanding of these risks could be achieved. An important ERM model is developed by

COSO. This framework helps to achieve an organization’s objectives in a risk-adjusted way.

Several researches have been conducted towards the relation between ERM and firm

performance. Under normal conditions, it is assumed that ERM is valuable for banks, since it

62
enhances performance (Baxter et al., 2011) and increases value (Liebenberg & Hoyt, 2011;

McShane et al., 2011). However, this depends on the quality of the ERM programs and it is

suggested that ERM is only valuable up until a certain level (McShane et al., 2011).

During a financial crisis, risk management lowers risk (Ellul & Yerramilli, 2010), and leads to

better performance McShane et al. (2011), it could be argued that it will be valuable for

stakeholders, if the company has a further extent of ERM implemented during a financial crisis.

From these propositions, several hypotheses were developed.

These hypotheses assumed that ERM implementation will lead to an improved in performance,

in both normal conditions and during a financial crisis. However, this improvement in

performance will only hold up until a certain extent. This means that when a bank implements

ERM above that level, it will no longer contribute to better performance.

In determining the effect of ERM on performance, also several control variables are taken into

account. These are efficiency, leverage, diversification, tier 1 capital ratio and credit quality.

These control variables are expected to have a positive effect on performance.

5.2 Conclusion

According to the uncertainty of conditions, the financial industries are facing a large number of

risks. For this reason, the financial industries emphasize risk management. Moreover, effective

risk management is so important that it can increase project success.

 The study summarizes that banks used different credit risk management tools, techniques

and assessment models to manage their credit risk, the credit risk management and that

they all have one main objective, i.e. to reduce the amount of loan default which is a

principal cause of bank failure.

63
 The surveys show that respondents identified commitment and support from top

management as the most important. Top-level management responds to business

processes and manages credit risk. Most of the organizations believe that it is the

responsibility of the Board of Directors or Committee and Executive Management team

to establish credit risk management. Top management decides the objectives and

strategies for organizational credit risk management activities, mission and overall

objectives.

 The entire respondent indicates that their organization has a documented credit risk

management guidelines and Most of the respondents understand the guideline of credit

risk management. The guidelines also help the institutions to supports the goals and

objectives of credit risk management. Because the financial world is always in

fluctuation, almost more than half of the respondent suggests that organizational structure

must be reviewed regularly and adjusted to adapt to changing financial environments and

the changes made once per year and at the time when it is believed to have changes.

 The survey shows the respondents credit risk management becomes a part of good

business practice and should include training staff appropriately. Since the purpose of

training is to improve knowledge, skill and attitudes to job satisfaction the organizations

provide training for employees once per year as agreed by most of the respondents. In

addition, the respondents state that their organizations have established procedures for

keeping up-to-date and informed with changes in regulations to their staff.

 The paper shows the means of communication that they use to reduce credit risk. The

results show that the most common way of communicating effectively to reduce risk is

developing understanding between management team and employee.

64
  The study also reveals that banks with good or sound credit risk management policies

have lower loan default ratios (bad loans) and higher interest income (profitability).

 This study shows that there is a significant relationship between bank performance (in

terms of return on asset) and credit risk management (in terms of loan performance).

Better credit risk management results in better bank performance. Thus, it is of crucial

importance that banks practice prudent credit risk management and safeguarding the

assets of the banks and protect the investors’ interests.

 The study also reveals banks with higher profit potentials can better absorb credit losses

whenever they crop up and therefore record better performances.

5.3 Recommendation

Based on the findings the researchers would recommend that the banks could establish a credit

risk management team that should be responsible for the following actions that will help in

minimizing credit risk;

 Participation in portfolio planning and management

 Working with Business Groups and individual in creating credit risk awareness within the

bank‘s risk taking capacity.

 Creating goal concurrent.

 Developing and maintaining credit approval authority structure and granting approval

authority to qualified and experienced individuals.

 Since the credit risk management department is at infant stage providing training for the

employee to enhance their capacity and reviewing the adequacy of credit training across.

65
 Developing data base management to manage portfolio data and Setting an information

technology system to enhance communication and obtaining accurate data in timely

manner.

 Presents information about the bank‘s exposure to and its management and control of

credit risks, in time

 Follow up the implementation credit policies and standards that conform to regulatory

requirements and the bank‘s overall objectives and improve the miss implementation of

credit risk management policies or guidelines. Cope up to the changes of credit risk

management policies with the regulatory body or organ.

 Establish external credit rating agencies to obtain the true information of the clients and

use modern credit evaluation technique like Altman Z score

 Improve the collateral registration process and obtain cash equivalent collateral for each

loan made to the customers.

 Increase the number of employee in the department.

66
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Houston, J. James, C. and Marcus, D. (1997), ‘Capital Market Frictions and the Role of Internal

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69
 APPENDIX 1

KWAME NKRUMAH UNIVERSITY OF SCIENCE AND TECHNOLOGY (KNUST)

This questionnaire is intended to analyze Credit Risk Management at Access Bank (Ghana) Ltd.

The survey is for academic purposes and therefore your anonymity and confidentiality is highly

assured.

1. Sex:

A. Male [ ]

B. Female [ ]

2. Age:

A. 20 – 30 [ ]

B. 30 – 40 [ ]

C. 40 – 50 [ ]

D. 50 – 60 [ ]

3. Educational level:

A. HND [ ]

B. Bachelors Degree [ ]

C. Master Degree [ ]

D. Other(s) [ Please specify ] --------------------------------------------------

4. How many years of experience do you have working with the bank

70
 □ Less than 1 year

□ 1-2 years

□ 3-5 years

□ Above 5 years

5. What is your expectation from effective credit risk management in your organization?

(You can use more than one answer)

□ Reduce financial loss

□ Improve communication with the stake holders

□ Improve decision making

□ Improve resource allocation

□ Other (please specify)………………………………………………………………………

3. Who has the authority to establish credit risk management policy or procedure ?

□ Chief executive officer (CFO)

□ Head of Financial Control

□ Board/ committee

□ Executive management committee

□ Head - Internal Unit

□ Staff

□ Other(please specify)……………………………………………………………………………

71
4. Does Access Bank (Ghana) have a documented credit risk management guideline or policy?

□ Yes

□ No

5. Does the guideline support the goals and objectives of credit risk management?

□ Yes

□ No

6. Do you understand the credit risk management guideline or policy?

□ Yes

□ No

7. How often do you think the bank should change its policies to manage credit risk?

□ Once per year

□ Every two years

□ Between two to three years

□ others

8. Do the bank have policy to support the development of credit risk management in the future?

□ Yes

□ No

72
9. Does the bank offer training for employees on Credit risk Management?

□ Yes

□ No

10. How does Access Bank effectively communicate to reduce credit risk? (You can choose

more than one answer)

□ Creating clear and trustworthy information

□ Developing understanding between management team and employee

□ Fast and sharp communication between management team and stakeholders

□ Regularly communicating among management and staff

□ Creating and maintaining a clear communication

□ Other (please specify)

11. How often does the bank provide credit risk management training courses?

□ Never

□ Once a year year

□ 2 times per year

□ More than 2 times per year

12. Does Access bank have established procedures for keeping up-to-date and informed with

changes in regulations?

□ Yes

□ No

73
13. Effect of Credit Risk Management

A. Do you agree that your organization’s revenue can be improved by effective risk

management?

Strongly Disagree [ ] Disagree [ ] Agree [ ] Strongly Agree [ ]

B. Do you agree that risk management reduce cost?

Strongly Disagree [ ] Disagree [ ] Agree [ ] Strongly Agree [ ]

C. Do you agree that risk management increase retention of good clients?

Strongly Disagree [ ] Disagree [ ] Agree [ ] Strongly Agree [ ]

D. Do you agree that risk management reduce loan default?

Strongly Disagree [ ] Disagree [ ] Agree [ ] Strongly Agree [ ]

E. Do you agree that risk management prevent fraud?

Strongly Disagree [ ] Disagree [ ] Agree [ ] Strongly Agree [ ]

14. Does the bank have internal credit rating system?

□ Yes

□ No

15. What challenges do you face in credit risk management unit?

………………………………………………………………………………………………………

16. What are the major kinds of methods or process used by the bank in managing credit risk?

………………………………………………………………………………………………………

……………………………………………………………………………………………………..

74