Assessment of Credit Management Practice, the Case of Oromia International Bank S.C
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Date
2021-04
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A.A.U
Abstract
This study is conducted aiming at investigating the credit management practices of OIB. It has assessed the overall operational issues in credit management processes maintained at OIB. An effective Credit management practice relies upon the Banks credit policy, credit portfolio, monitoring, supervision and follows up of loans and advances.Both primary and secondary data was employed for thus study;primary data wascollected usingquestionnaire and interview which was conducted with the managers andsupervisory staffsof credit department. Based on nature of study the secondary data wasgathered from yearly reports of the Bank 2016 to 2019,arrangement and technique dependent onpolicy and procedure.The research design was descriptive. Data analysis was undertaken usingExcel Spreadsheet and SPSS version20. The study has focused on major components of credit management. These include the application of the Bank’s credit policy and procedure, credit management and loan default, credit risk management, monitoring and control of credit, credit creation, collection and follow up. Finnnaly, ascan be concluded from the result of the study,OIB has a flexible credit management practice which is convenient for its loan customers. The study also depicted thatthe credit management practice of the Bank complies with its internal credit policy and procedure manual, regulatory directives of NBE as well as other applicable laws and regulations of the country. The study has also uncovered that there is no adequate internalcontrol activity maintained over the credit management practice of the Bank. This has a room to lead the Bank to credit, legal and reputational risk. Aspart offinancial statement assessment,the study has also noted that the statement providespoor loan credit management and weak credit risk mitigation. Among the Bank’s loan classification such as Pas, special mention, substandard, doubtful and loss categories, significant amount of loan and advances were found under NPLstatus (the last there loan classes). There was a total of above 3% un-performing loan which shows a loan default portion surpassing the Bank’s allowable for uncollectible loans and advances. And hence the studyrecommends thatestablishment of adequate, strengthened and effective internal control system is a coreactivity the Bank has to establish in order to mitigate the unforeseen risks of the Bank. The Bank shouldalso strictly pledge an effective follow up and monitoring system over loans and advances after their disbursement (after sales service) to reduce the amount of defaultingloans
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Keywords
Non-Performing Loan, NPL,, Substandard, Special Mention