Credit Risk Management Practices: A Case Study of Equity Bank Ltd.

Abstract

Risk management is a discipline at the core of every financial institution and encompasses all activities that affect a financial institution risk profile. The management of financial institutions has attached considerable importance to improve the ability to identify, measure, monitor, and control the overall level of risks undertaken. One of the major risk management practices ado ted b financial institutions worldwide has been the credit risk management practices (CRM). It involves maximizing a financial institution risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters. The purpose of this research was to determine the extent to which Equity Bank Ltd manages credit risk. The objectives of this research were to determine the specific functions responsible for CRM at Equity Bank Ltd, determine the importance of CRM in Equity Bank Ltd, Find out how CRM practices influences Equity Bank overall risk management practice, determine how Equity Bank Ltd identifies possible events or future changes that can lead to credit risk exposure, find out challenges faced by Equity Bank in the process of credit risk exposure, and to determine the frequency, timeliness and reliable reporting of credit risk information to the BOD and management. The researcher administered questionnaires to all credit managers and assistant credit managers in the credit department of Equity Bank Ltd based at Equity centre. This was a case study and a descriptive research design study where the researcher did a census of the whole population. The study found out that Equity Bank engages in CRM practices as required by CBK risk management guidelines. The findings show that Equity Bank Ltd and the xi entire banking industry in Kenya is yet to implement key structures and systems to enhance better CRM practices as it is the case with developed economies. The study recommended that Equity Bank should strengthen CRM practices by