Evaluation of credit management and its effect on performance of rural banks in Ghana: a case study of Adansi Rural Bank Ltd. Fomena-Ashanti

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OCTOBER, 2015
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Abstract
The establishment of rural banks in Ghana in 1976 became crucial in response to make financial services and credits available to the majority of rural dwellers and hence, boost their economic activities. The sector has seen some improved banking operational performance, some new and dynamic innovations, and increases in efficiency to some extent in a way better than previously imagined and perceived by the Ghanaian populace. However, some rural banks are seen as the department of the banking industry that encounter all levels of credit and financial risks, due to poor credit management practices prevailing in the sector, hence, affecting their profitability and creating liquidity problems. The purpose of this study was to examine the credit management and its effect on performance of rural banks in Ghana, using Adansi Rural Bank Limited as a case study institution. The study was conducted using both primary and secondary data. Primary data was collected through questionnaires from credit managers/officers of the bank. In addition, secondary data in the form of financial ratios of the bank was used to support the study. Descriptive statistics and regression analysis were the main data analysis techniques employed. The findings indicated 44.5% of the variations in the financial performance of Adansi Rural Bank Limited are explained by credit management practices such as credit appraisal, credit disbursement and credit and collection techniques and. Also, the F-statistics of 44.5 which is significant at 1% (sig≤0.01) indicated that credit management has significant impact on the performance of the bank. The study further revealed that the main factors causing loan default are laxity in loan monitoring, diversion of credit on the part of customers and customer business failure. The result also showed that the bank has been performing creditably well in the area of credit management through effective appraisal system and efficient recovery strategy. The study recommends that the rural banks must improve their monitoring practices since the major cause of loan default is diversion of funds. Furthermore, the study recommends that the banks should provide non-financial services in the form of training and business advice to their customers. This will go a long way to improve their business performance and enhance their ability to repay their loans.
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A thesis submitted to the Department Of Marketing and Corporate Strategy, College of Humanities and Social Sciences in partial fulfillment of the requirement for the degree of Master of Business Administration (MBA) in Strategic Management and Management Consulting.
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