Investigating the effects of credit risk management practices on profitability at Absa bank Zambia plc.
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Commitment to credit risk management is an essential component of a comprehensive technique to risk management and critical to the long-term success to any banking institution. The rising of non-performing loans and compressed profit margins combined with slow economic growth over the past years have created a much more challenging environment for banks. The objective of this study was investigating the effects of credit risk management practices on profitability at Absa bank Zambia plc. Causal research design was used for the study. The population of the study consisted of all the 32 workers at Absa bank that work under credit risk management. The study involved the collection and analysis of primary data for the purpose of meeting its objective. Self-administered questionnaires were used to collect the data. The study intended to establish credit risk management practices on profitability and the level of non-performing loans and therefore linear regression analysis model was used to determine the nature of this relationship. The study revealed that Absa bank reviewed its credit policy yearly and half yearly, and that employees are made aware of credit policies through credit manual, regular training, regular meeting and supervision. The study further revealed that methods mostly used in credit risk assessment at Absa bank are risk adjusted return on capital and linear probability model. The study further established that here is a negative relationship between the level of non-performing loans and credit risk management practices at the banks with a correlation coefficient of 0.918, implying that the level of non-performing loans is inversely affected by credit risk management practices at there by affects the bank profitability. The study recommended that there is need for banks to adopt various credit risk management’s practices in order to reduce their level of non-performing loans and increase on the profitability. It further recommended for sustainable and reliable credit database for immediate and quicker use when needed by banks.
SponsorshipThe University of Zambia
The University of Zambia
SubjectRisk management practices.
Risk and profitability--Management strategies.