Determinants of Credit Risk Management Effectiveness in Private Commercial Banks in Ethiopia
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Date
2022-03
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A.A.U
Abstract
Risk management involves a set of tool and models for measuring and controlling risk. There is a research gap in risk understanding, risk identification system, risk assessment and analysis, risk monitoring system, and risk evaluation determinants in the Ethiopian context in general and in the study area in particular. The main objective of this study is to examine determinants of credit risk management effectiveness in Ethiopian private commercial banks in Addis Ababa city. A quantitative research and explanatory research method is used. The data was collected using self-administered close ended structured questionnaires from 166 respondents by using nonrandom sample technique called convenience sampling technique. Descriptive statistics and multiple linear regressions were used for analysis. Assumptions are tested to check the appropriateness of multiple linear regressions for analysis. The descriptive statistics result of (risk understanding, risk assessment and analysis, risk monitoring system, and risk evaluation) mean score is high which is above the mean score of point 3 and risk identification system has medium value. The multiple regression analysis result revealed that the four predictors risk understanding, risk identification system, risk assessment and analysis, and risk evaluation have significant and positive coefficient of beta values indicating that they have positive effect on credit risk management effectiveness under the study while one predictor risk monitoring system has insignificant alpha valve which indicated that it has no any effect on credit risk management effectiveness under the study. It is recommended that the managers of each bank had better to maintain current established risk management techniques and that employees are expected to perceive in the bank; the management of each bank also set up proper risk identification mechanism to minimize occurrence of high risk in the bank; they had better asses and analysis their effectiveness related to loan and repayment performance in the bank ; each private commercial bank in Ethiopia had better continue the timely evaluation of financial risks to find out measurements to be taken in order to maintain safe balance of loan in the bank.
Key Words: Credit risk management effectiveness, Risk understanding, risk identification system, risk assessment and analysis, risk monitoring system, and risk evaluation
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Keywords
Risk Understanding, Risk Monitoring System