Abstract:
Credit risk Management has been a priority to all financial institutions that give loans to its customers to increase profitability and reduce risk of loan default in banks operations. This justifies the recent awareness and importance banks now place on managing their loan portfolios. The main objective of this study is to examine how financial institutions manage credit risk in a way to reduce loan defaults considering the diverse customers at hand with different needs and credit worthiness. The main research instruments used were questionnaires, interviews, primary and secondary sources of data.
Results of the study revealed that, the banks dealings with the defaulters of loans falls largely on the shoulders of the loans and relationship officers.
Also, the bank falls short in getting detailed information about their clients past credit records in their dealings with other financial institutions and external relations before granting loans. The research recommends that;
• There is the need to use self help group mechanism where a group of individuals pull their savings into a fund from which they can borrow from when necessary.
• Regular training should be given to the banks’ recovery team to enable them do regular and effective monitoring. Delays in loan approval processes should be curtailed so that borrowers can receive their loans on time and thereby avoid repayment problems.
• Credit risk monitoring and supervision efforts should be intensified by the bank. The bank should ensure that credit officers perform periodic follow-ups on borrowers to ensure that loans are used for the intended purpose.
