Credit Risk Management System of Ethiopian Commercial Banks (Case of Some Public and Private Banks)
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Date
2009-06
Authors
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Journal ISSN
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Publisher
Addis Ababa University
Abstract
Banking is a business practice, or profession almost as old as the very
existence of man. It has sprouted from the very primitive stone age
banking, through the Victorian age to the technology driven Google- age
banking, encompassing automotive teller machines (ATMs), credit and
debit card, correspondent and internet banking ( Wikipedia, 2008).
While financial institutions have found difficulties over the years for a
multitude of reasons, the major cause of serious banking problems
continues to be directly related to lax credit standards for borrowers and
counterparts, poor portfolio risk management, or a lack of attention to
changes
in
economic
or
other
circumstances
that
can
lead
to
deterioration in the credit standing of bank's counter parties. Now a days
credit risk is becoming a vicinity of concern not only to bank's but to all
in the business world because the risk of a trading partner not fulfilling
his obligations in full on due date can seriously Jeopardize the affairs of
the other partner. The goal of Credit Risk Management is to maximize
banks risk- adjusted rate of return by maintaining credit risk exposure
within acceptable parameters. Banks need to manage the credit risk
inherent in the entire portfolio as well as the risk in individual credits or transactions. Banks should also consider the relationships between
credit risk and other risks. Effective management of credit risk is a
critical component of a comprehensive approach to risk management and
essential to the long-term success of any banking organization (Basle
committee on banking supervision, 2004)
The axle of this study is to have a clearer picture of how Commercial
Bank of Ethiopia, Construction & Business Bank, Dashen Bank S.C.,
Awash International Bank S.C., United Bank S.C. and NIB International
Bank S.C manage their credit risks. In this light the study in its first
chapter gives background to the study and the second part is a detailed
literature review on the origin of banking, credit risk management
principles, tools, techniques and assessment models. Data analysis and
interpretation of results are dealt in chapter three. Finally based on
these, conclusions and recommendations were drawn on the last chapter
of the paper
Description
Keywords
public and private, Credit risk management