ASSESSING THE EFFECTIVENESS AND IMPACT OF CREDIT RISK MANAGEMENT PRACTICES OF CAL BANK
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Date
July 2015
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Abstract
Credit risk management in banks has become more important not only because of the
financial crisis sometimes the industry find itself but a crucial concept that determines
bank's profitability, liquidity, survival and growth. The purpose of this study is to have a
clearer picture of how banks manage their credit risk with special reference to CAL Bank limited, Ghana. Indisputably, CAL Bank originate most of its interest incomes from
loans and advances, however, not all loans granted to beneficiaries perform well and earn the expected returns and this tend to have unfavorable effect on the profitability of CAL Bank. In the light of key role that CAL Bank has assumed in the national economy, the study was conducted to establish credit risk management practices and its impact on profitability of CAL Bank. The study specifically focused to identify tools and techniques used to mitigate CRM, loan portfolio sector with highest rate of NPLs, CRM practices and the impact of CRM on profitability of CAL Bank. In terms of data, primary and secondary data were used for the study. The study found out that credit mitigation techniques and tools of the bank includes collateral, termination clauses, re-set clauses and portfolio management, commerce and finance recorded the highest incidence of NPLs because of high cost of trading resulting from depreciation of the cedi over some years now, a substantial degree of standardization of process and documentation is required in terms of character, capacity, collateral, capital and conditions of borrower as a CRM practices of CAL Bank. The impact examination also revealed that credit risk management indicators (GNPL and TL/TD) used, have significant inverse relationship on the profitability (ROE) of CAL Bank limited, Ghana. Credit derivatives, credit database and CRM integration among all departments are highly recommended for CAL Bank to address the menace of NPLs. International payments through letters of credit or
financing programs are also suggested for further studies.
Description
A Thesis submitted to the Department of Accounting and Finance, Kwame Nkrumah University of Science and Technology in partial fulfilment of the requirements for the degree of Master of Business Administration (Finance Option)