What influences banks’ choice of credit risk management practices? Theory and evidence

2019 ◽  
Vol 40 ◽  
pp. 1-14 ◽  
Author(s):  
Dilek Bülbül ◽  
Hendrik Hakenes ◽  
Claudia Lambert
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Management Practices ◽  
Credit Risk Management

An Investigation of Credit Risk Management Strategies of Private Commercial Banks of Bangladesh

2014 ◽  
Vol 2 (2) ◽  
pp. 77-87
Author(s):  
Abu Hanifa Md. Noman ◽  
Md. Amzad Hossain ◽  
Sajeda Pervin
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Commercial Banks ◽  
Management Practices ◽  
Management Practice ◽  
Management Strategies ◽  
Third Party ◽  
Primary Data ◽  
Credit Risk Management ◽  
Risk Management Strategies

Objective - The study aims to investigate credit risk management practices and credit risk management strategies of the local private commercial banks in Bangladesh. Methodology -The investigation is conducted based on primary data collected from a set of both closed end and open end questionnaire from 23 out of 39 local private commercial banks in Bangladesh. Descriptive statistics has been used in processing the data and interpreting the results. Findings - The results reveal that credit risk management practice of the sample banks is sound which is attributed to the appropriate implementation of Basel II and credit risk management guidelines the country's central bank. The findings further show that use of Credit risk grading is most popular and effective criteria for measuring the borrowing capacity of the borrowers. In order to control credit risk and preventing losses from credit exposure banks give more focus on collateralization, accurate loan pricing and third party guarantee. Loan is monitored properly and credit reminder is given to the client if principal and interest remain outstanding for three months. The study further reveals that lack of experienced and trained credit officers, lack of genuine market information and Lack of awareness regarding non-genuine borrower are the most important problems of current credit risk management practices in Bangladesh. Novelty - To the best of the knowledge of the authors the study is the first that investigates credit risk management strategies of private commercial banks, especially on Bangladesh. Type of Paper - Empirical Keyword : Bangladesh; Commercial Bank; Credit risk; Credit risk management; Credit risk management strategies.

Credit Risk Management of Commercial Banks in Nepal

2019 ◽  
Vol 4 (1) ◽  
pp. 27-37
Author(s):  
Shreya Pradhan ◽  
Ajay K. Shah
Keyword(s):  
Risk Assessment ◽  
Risk Management ◽  
Credit Risk ◽  
Commercial Banks ◽  
Management Practices ◽  
Risk Mitigation ◽  
Mitigation Measures ◽  
Credit Risk Management ◽  
Loan Repayment ◽  
Credit Risk Assessment

The study is primarily focused on credit risk assessment practices in commercial banks on the basis of their internal efficiency, assessment of assets and borrower. The model of the study is based on the analysis of relationship between credit risk management practices, credit risk mitigation measures and obstacles and loan repayment. Based on a descriptive research approach the study has used survey-based primary data and performed a correlation analysis on them. It discovered that credit risk management practices and credit risk mitigation measures have a positive relationship with loan repayment, while obstacles faced by borrowers have no significant relationship with loan repayment. The study findings can provide good insights to commercial bank managers in analysing their model of credit risk management system, policies and practices, and in establishing a profitable and sustainable model for credit risk assessment, by setting a risk tolerance level and managing credit risks vis-a-vis the prevailing market competition.

scholarly journals Application of Credit Risk Management Model in Chinese Banks

2019 ◽  
Vol 11 (1) ◽  
pp. 141
Author(s):  
Haojie Chen ◽  
Ng Sin Huei ◽  
Lew Shian Loong
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Management Practices ◽  
Default Probability ◽  
Management Model ◽  
Credit Risk Management ◽  
Kmv Model ◽  
Black Scholes ◽  
Chinese Banks ◽  
A Company

The main objective of this paper is to perform empirical analysis and research on the KMV and Zeta models, discussing whether banks in China could adopt both models in their credit risk management practices. In order to measure credit risk, the KMV model focuses on “Expected Default Probability” (EDP) that is calculated using Black-Scholes Option Pricing Formula. On the other hand, the Zeta Model focuses on determining the probability of a company going bankrupt two years prior to the event. Previous research on risk management has shown that the primary risk the banks generally face is credit risk as an increasingly greater number of banks suffer losses because of credit issues. This paper therefore aims to add to the existing literature a strong case for the relevance of both the KMV and Zeta models to be considered in the topic of banks’ credit risk management.

scholarly journals The Effect of Credit Risk and Capital Adequacy on the Profitability of Rural Banks in the Philippines

2017 ◽  
Vol 64 (1) ◽  
pp. 83-96 ◽  
Author(s):  
Rufo Mendoza ◽  
John Paolo R. Rivera
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Internal Control ◽  
Management Practices ◽  
The Philippines ◽  
Capital Adequacy ◽  
Control Measures ◽  
Credit Risk Management ◽  
Bank Profitability ◽  
Regulatory Bodies

Abstract This paper examines the credit risk and capital adequacy of the 567 rural banks in the Philippines to investigate how both variables affect bank profitability. Using the Arellano-Bond estimator, we found out that credit risk has a negative and statistically significant relationship with profitability. However, empirical analysis showed that capital adequacy has no significant impact on the profitability of rural banks in the Philippines. It is therefore necessary for the rural banks to examine more deeply if capital infusion would result in higher profitability than increasing debts. The study also implies that it is imperative for the banks to understand which risk factors have greater impact on their financial performance and use better risk-adjusted performance measurement to support their strategies. Rural banks should establish credit risk management that defines the process from initiation to approval of loans, taking into consideration the sound credit risk management practices issued by regulatory bodies. Moreover, rural banks need to enhance internal control measures to ensure the strict implementation of internal processes on lending operations.

Credit risk management of Ghanaian listed banks

2016 ◽  
Vol 58 (2) ◽  
pp. 162-178 ◽  
Author(s):  
Michelle Ayog-Nying Apanga ◽  
Kingsley Opoku Appiah ◽  
Joseph Arthur
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Management Practices ◽  
Banking Sector ◽  
Banking Industry ◽  
Credit Risk Management ◽  
Structured Interviews ◽  
Content Type ◽  
Credit Risks ◽  
Commercial Loans

Purpose – The study aims to assess credit risk management practices within financial institutions in Ghana. Specifically, the study compares credit risk management practices of listed banks in Ghana with Basel II (1999). Design/methodology/approach – The analysis is based on data gathered from varied sources, namely, use of questionnaires, analysis of internal credit policies and procedure manuals and semi-structured interviews and discussions with credit risk managers of the selected banks in May 2007 and October 2014. Findings – Overall, the credit risk management practices within listed banks in Ghana are in line with sound practices. The only dissimilarity, however, is the role of the board of directors in defining acceptable types of loans and maximum maturities for the various types of loans. The listed banks in Ghana are also exposed to credit risks associated with granting both corporate and small business commercial loans and the use of collaterals to mitigate their credit risk exposures. Practical implications – Banks in Ghana should consider developing the skills of all their personnel and appropriately motivating those involved in the credit risk management processes to ensure that they carry out this process efficiently. Originality/value – Research into credit risk management in the banking industry from the Ghanaian perspective remains scant. This study is, therefore, timely, and its findings are invaluable for the efficient management of credit risk in the banking industry. This study provides policy recommendations which will enhance shareholder value and, in this way, contribute to greater stability in the banking sector in developing countries, in particular.

scholarly journals Relationship Between Risk Management Practices and Investment Decisions in Bank of Kigali, Rwanda

2020 ◽  
Vol 1 (1) ◽  
pp. 88-107
Author(s):  
Gedion Alang’o Omwono ◽  
Kayumba Annette
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Best Practice ◽  
Management Practices ◽  
Investment Decisions ◽  
Liquidity Risk ◽  
Market Risk ◽  
Risk Tolerance ◽  
Credit Risk Management ◽  
Risk Monitoring

The purpose of this study was to examine the relationship between risk management practices and investment decisions in Bank of Kigali, Rwanda. This study adopted correlational research design. Descriptive statistics include those of the mean, standard deviation and frequency distribution while inferential statistics involves use of spearman’s coefficient correlations. Linear regression was used where ANOVA was carried on each variable. The study found that there was a correlation between liquidity risk management, default risk management and market risk management with performance of the Banks. The study findings indicated that credit risk management (r=0.096, p<0.01), liquidity risk management (r=0.347, p<0.01), market risk management (r=0.506, p<0.01) and operational risk management (r=0.612, p<0.01) on financial performance. It however found that the Banks do not involve experts and consultants in market risk management thus recommendations were made for the Banks to revise their credit risk management policies, open up and share information with other players on market risk thus involve consultants more in their market risk management and to be more proactive than reactive in risk management. The study concluded that, risk management has a positive influence on the investment decisions and that risk monitoring can be used to make sure that risk management practices are in line with proper best practice risk monitoring policies which also helps bank management to discover exposures at early stages and make corrective actions. The study recommended that, Senior management should develop strategies, policies and practices to manage risk in accordance with the Banks risk tolerance and to ensure that the bank maintains sufficient liquidity risk cover.

scholarly journals The Relationship Between Credit Risk Management Practices And Profitability In Malaysian Commercial Bank`S

2019 ◽  
Vol 8 (5C) ◽  
pp. 53-59
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Management Practices ◽  
Secondary Data ◽  
Capital Adequacy ◽  
Credit Risk Management ◽  
Loan Loss ◽  
Commercial Activity ◽  
Loan Loss Provision ◽  
Loan Loss Provisions

This research scope looks into credit risk management and its effect on a specific group of banks with intensive commercial activity within Malaysia. Yearly reports from 8 different banks that rely on secondary data gathered from the span of 3 years (2015-2017), form the essence of this research. Return on assets (ROA) was primarily used in this research to measure profitability. Also, two credit risk measuring methods were used, loan loss provisions ratio (LLPR) and ratio of capital adequacy (CAR). From the results we deduced that commercial bank's profitability related positively to capital adequacy ratio and loan loss provision ratio. Therefore, the research calls upon the need of new management structure that optimally keep credit risk in check and boost banks profitability.

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