Assessment of credit risk management practices of Kakum bank limited

Abstract

Laxed or poor credit management is identified as a major cause for the collapse of many a rural bank in Ghana. Kakum Rural Bank Ltd., as one of the few rural banks to stand the test of time, established way back in 1982, continues to post significant profits year after year. However, in 2003, an on-site report into the operations of the bank by Bank of Ghana showed that the ratio of overdue and non-performing loans to advances was unhealthy and alarming. As a result, the bank was tasked to closely supervise its credit risk management practices to bring the situation under control. The purpose of this study was, therefore, to assess the efficiency of the credit risk management practices of Kakum Rural Bank Ltd. from 2005 to 2009. Both primary and secondary data sources were used. In obtaining information from the primary data, a survey questionnaire and interviews were employed and administered to selected members of staff, whiles a simple random sampling technique was employed to select 300 customers of the bank. The bank’s financial reports and ARB Apex Bank reports were used in obtaining information from the secondary data source. The results of the study show that KRB has put in place a sound credit department equipped with the requisite skills and expertise to effectively handle and operate the credit function of the bank. KRB does not conform to the credit allocation guidelines stipulated by the Bank of Ghana, which has led to the bank achieving a recovery rate averaged about 85% over the five-year period (2005- 2009). The Board of Directors also do play an active role in the credit risk management of the bank.