Abstract:
The paper aims to examine the impact of credit risk on the profitability of
credit unions in Ghana. The specific objectives are: to examine the methods of
measuring credit risk, examine the factors that influence credit standards of
credit union, examine the relationship between credit risk and profitability and
to assess the credit risk management strategies adopted by credit unions in
Ghana. The research design adopted by the study was a descriptive research
design. A sample size of 60 out of the population of 400 credit unions in
Ghana was used. A self-administered questionnaire was used as the instrument
for the collection of data. The study found out that the use of ratio of non
performing loans to total loans, levels of bad debt written-off and increase in
provision for loan losses are methods common in measuring credit risks to all
credit unions. It was revealed that there is a negative relationship between
credit risk and profitability. The findings revealed that cost of risk associated
with the loan, business cycle, availability of interim financing mechanism are
some of the conditions that influence the credit standards of credit unions in
Ghana. The study found that availability of lending policies, different credit
terms for different customers and holding guarantors responsible for the loss
and taking over collateral are management strategies towards risk
management. It is also recommended that credit unions must develop a
framework that consistently measures credit risk. Management of credit
unions must provide regulations on credit risk, monitoring mechanisms and
credit granting processes to loan/credit officers and also government through
the Bank of Ghana can develop and enforce some standard credit guidelines
that will influence the credit policies of credit unions.
