Assessment of Internal Credit Risk Grading System Quality in Ethiopian Commercial Banks

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The major purpose of this study is to thoroughly examine the quality of the internal credit risk grading system utilized by 17 commercial banks in Ethiopia and establish whether it varies among institutions. A descriptive inquiry was conducted for the primary study, utilizing two mutually supporting self-administered questionnaires, and yearly reports were reviewed on the components to identify the variance issue. Data were gathered from experts and mid to senior level credit and risk managers at the banks under examination who worked in their respective head offices. Two hundred twenty-nine surveys were gathered from purposefully selected commercial banks using two independent and separate questionnaires. A quantitative technique was utilized to arrange the two sets of data, perform the analysis, and provide a report on the research's findings, which were stated statistically using percentages, frequency, mean, and standard deviation scores. It is found that with the exception of Wegagen and Buna International Bank, which were rated good and ranked first and second, the others were rated marginal or unsatisfactory. Besides, it is found that ICRGS quality does not vary across banks taking into account their respective ownership structure, market size, asset value, deposit, and profitability. As a result, the National Bank of Ethiopia should consider adopting a standard with quantifiable metrics that all banks should utilize to increase the level of ICRGS quality for individual banks as well as at the industry level, and it should be examined on a regular basis. Commercial banks should also ensure that an effective ICRGS system is in place in order to increase the quality of their ICRGS. Key Words: Commercial Banks, Credit Risk, Credit Risk Management, Quality of Internal Risk Grading System



Commercial Banks, Credit Risk Management