| Abstract: | The main objective of the thesis is to assess the effect of credit risk management on the quality
of loans portfolio in the case of Commercial Bank of Ethiopia Bole District. A sample of 82
respondents was drawn from the employees of the Commercial Bank of Ethiopia Bole District
by using purposive sampling technique. Both primary and secondary data were used. Data
related to loan portfolio and loan position is obtained from the bank whereas, primary data
are collected using structured questioners from the employees of the bank. Descriptive and
inferential statistics were used to conduct the research and Multiple Regression Analysis was
run using SPSS Version 21.0 to analyze the data. With regard to credit risk management
practices, the result show that Commercial Bank of Ethiopia Bole District has not satisfactory
risk Management practice. Precisely, using score 1 (poor) to 5 (best), all the parameters of
risk management practice assessment have a score value below 3.40, i.e. Credit Risk Granting
and Portfolio Quality Control (3.40), Credit Risk System and Standard (3.20), Credit Risk and
Portfolio Quality Control (3.17), Risk Identification, Measurement and Control (3.03), and
Risk Environment (2.98). The Bank`s loan portfolio is also more vulnerable to various types of
risks, such as to unpredictable risk, predictable, and controllable risks. The bank’s NPL ratio
was above 15% for the last five years. The regression result also showed that sound credit
granting process and the existence of comprehensive risk management system and standards
are the significant variables that affect loan portfolio quality of the bank. Credit risk
management practice of the bank has insignificant effect on loan portfolio quality. Both in
terms of Non-performing loan and concentration, Commercial Bank of Ethiopia Bole District
has poor loan portfolio quality which is due to the bank’s poor credit risk management
practice. Therefore, there is a need to improve and enhance credit risk management practice
of the bank, especially, by improving the credit granting process to have sound credit risk
management, and by updating credit risk management system and standards so as to have
strong credit management. |
