Assessment of Credit Risk Management at Rural Bank (Case Study: Juaben Rural Bank Ltd)

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Credit risk management is very crucial in Rural Banks since credit delivery constitutes the core function that stimulates economic activities to promote wealth creation and improve standard of living. However, a bank’s inability to recover substantially the credit facilities granted over a period of time has the tendency of creating liquidity crises and insolvency problem that lead to an imminent bank failure. To forestall such unfavourable situation, it is pertinent for Rural Banks to institute and observe sound credit management practices as a means of controlling and minimizing credit risk. Rural Banks have been vulnerable to high loan default, which led to 23 of them becoming distressed in 1999. It is for this reason that the research is conducted on the credit risk management of rural banks, with reference to Juaben Rural Bank in the Ashanti Region to identify the inherent weaknesses in the credit delivery practices, which contribute to repayment difficulties and to the commend measures to minimize high incidence of loan default. The researcher used questionnaire and interview guide to obtain the needed data for this work. Thirty credit files of loan defaulters were selected from each branch. Data so obtained were analyzed using percentiles. The research revealed among other issues that there is laxity in monitoring, supervising and controlling credit facilities which accounted for the increase in loan default. It is recommended that monitoring and supervision of credit facilities should be effective by way of constant review of repayment performance, sending demand letters for repayment defaults, documented field visits to assess state of affairs and provision of needed logistics to ease mobility and frequency of working visits to loan beneficiaries.
A thesis submitted to the KNUST School of Business, College of Art and Social Sciences in partial fulfilment of the requirements of Master of Business Administrataion, 2008