Credit Risk Management in Agricultural Development Bank in Ghana: Evidence from Volta Region

Abstract

Credit risk has been a key area of interest not only to financial players but also to everyone in the business and economic community around the globe. This is because the risk of a business client or customers not meeting their promises fully and on time can impact negatively on the other party to the trade or agreement. While financial institutions have faced difficulties over the years for various reasons, most of the crucial banking challenges continues to be directly linked to improper investment risk management, relaxed credit standards for customer, or insensitivity to changes in economic or other circumstances that can worsen the credit situation of a bank. This study assesses the effectiveness of credit risk management in Agricultural Development Bank Ghana Limited in the Volta Region. Both primary and secondary sources of data were used in the study. Purposive sampling was used to collect primary data from the staffs of the credit departments and customers of all ADB Ghana Ltd branches in the region. Inferences were drawn using descriptive statistics. The findings revealed that the bank employed mostly the judgmental approach to credit assessment where the assessor’s experience and understanding of the case to the decision to extend or refuse credit is most crucial. It was also revealed that the bank’s objective of managing credit risk has been mostly achieved due to the mechanisms put in place by the bank’s risk management department. Based on the findings, the study recommended that the staff of the credit department must continually be trained to strengthen them to improve upon their performance and a platform created to educate customers on the amount of capital the bank loses and its accompanying consequences when they fail to payback their loans.