Credit Risk Management Practice of Ethiopian Commercial Banks

Abstract

The main purpose of study is to investigate the level of Credit risk management practice of Ethiopian commercial banks. Descriptive research based on Survey approach was carried out using primary data collected through self-developed questionnaire. Econometric and other statistical methods were employed to test the hypothesis. The study found that Credit risk, liquidity risk and operational risk are the three important types of risks the banks mostly faced.  The three widely used Risk identification method were identified and ranked as Financial Statement Analysis firstly and followed by audit and physical inspection and then internal communication. The study further confirmed that four aspects of Basel’s Credit risk management principles explain a significant level of variation on Credit risk management practice of Ethiopian commercial banks. Furthermore, Establishing an appropriate Credit risk environment and Ensuring adequate Controls over credit risk were found to be the most influential variables on level of Credit risk management practice. It is finally observed insignificant difference between public and private commercial banks in all aspect of Credit risk management principles and practice.

Keywords: Credit risk management principles, credit risk management practice, Ethiopian commercial banks