Credit management practices of two rural banks in the Greater Accra Region

Abstract

Rural banks have been vulnerable to high loan default, which led to 23 of them becoming distressed in 1999. It is for this reason that the research was conducted into the credit management practices of rural banks. The study explored the credit management practices of two rural banks in the Greater Accra Region to identify the inherent weaknesses in the credit delivery processes that contribute to repayment difficulties and recommend measures for improvement. A sample size of two hundred credit files was randomly selected to cover 10 per cent of the population. The data collection consisted mainly of the review of credit files and records and on-site examination reports. The credit data collected were analysed by using percentage changes, averages and aggregation on trend bases. The findings of the research among others were: (a) credit approvals were largely based on adequacy of collateral; (b) monitoring/ supervision was generally weak in the banks; (c) loan loss provisions were under provided and laxity in adopting the credit delivery process contributed to some extent in high non performing loans. In addition training in credit management was on adhoc basis and did not necessarily meet the needs of credit officers to ensure their effectiveness and efficiency. It was recommended that the due credit delivery processes should be followed strictly to minimise the incidence of high loan default. Furthermore, appropriate training programmes should be offered to directors and management personnel to facilitate the taking of good credit decisions.