| Abstract: | The objective of this study was to investigate factors affecting credit risk management practices in
the Bank of Abyssinia. To achieve this, both primary and secondary sources of data were used.
Questionnaires were distributed to 84 selected employees working in risk management and credit
management departments at head office of Bank of Abyssinia from which 80 questionnaires were
returned. In addition, an interview was conducted with four (4) managers. In the study both
quantitative and qualitative research approaches with descriptive and inferential analysis
techniques were employed. Descriptive and multiple linear regression analysis were conducted on
the data collected through questionnaires with the help of Statistical Package for Social Science
(SPSS), version 27 and interview data were analyzed thematically. Descriptive analysis as well as
qualitative analysis of interviews data were conducted to evaluate effectiveness of credit risk
management practice and the result revealed that the Bank has effective risk management system.
Sound credit risk environment, appropriate credit granting process, effective credit risk
monitoring and follow up were properly institutionalized. The result also showed that the bank
incorporated environmental risk analysis, government policy risk analysis, and market risk
analysis in its credit risk management system. Whereas the regress analysis was conducted to
examine the effect of independent variables (credit risk environment, credit granting process,
credit risk monitoring and follow up, environmental risk analysis, government policy risk analysis,
market risk analysis) on dependent variable (effectiveness of credit risk management system). The
regression output result indicated that all explanatory variables have statistically significant
positive effect on credit risk management of the bank. Based on the results the researcher
recommended that the bank ought to robust its credit risk management through incorporating
stress tests for potential government policy risks analysis and developing information systems and
analytical techniques in credit assessment process |
