Assessment of Credit Management in Case of Awash Bank

Topics: Debt, Interest, Credit Pages: 24 (7290 words) Published: December 29, 2012
1. Introduction
1.1. Background of the study
The word credit has been derived Latin word “credo” which means I believe or I truest which signifies at trust of confidence reposed in another person. The term credit thus means reposing trust of confidence in some body. Credit is purchasing power not derived from income but created by financial institution either as an offset to idle income held by deposition in the bank or as a need addition to the total amount purchasing. By credit we mean the power which one person has to induce another to put economic good at this disposal a time on promise or future payment. Credit is thus, an attributed of power the borrower (Thomas 1999). Credit is exchange function in which creditor gives some good or money to debtor with a belief that after sometimes he/she will return it. In other word trust is a credit (Anderson 2001). Credit exploitation and banking Industry is go side by side. Granting credit is making an investment in customers, an investment tied to the sale of product or service, firm offer credit to customer for a number of reasons: the obvious reason is that offering credit is way of stimulating sales. There are costs associated with offering credit to customer. First granting credit exposes the firm to the possibility that the customer default on the payment, resulting in losses for the firm. The second cost is the interest forgone between the time of credit and the time of payment by customers. In granting credit firms determine how much effort to pay and customers who would not pay after credit has been granted the firm has potential problem of collecting the cash. 1.2. Statement of the problem

In modern economic world business activity without the help of banking facility is impossible and unthinkable. Today the banking activities serve the business, banking service play a big role in economic growth and development of any nation regardless if the level of its growth. Managing and maintaining credit is a common problem of banking industry due to the poor credit managing techniques which create negative influence on the activity of the banking industry. There is a need to assess the credit management of banking industries in awash international bank S.C (AIB). This study tries to answer the following questions. * Do borrowers repay their debt on time?

* What techniques does the bank use to collect the amount they lend? * Does the bank provide adequate customer guidance and advisory service? * Do the bank face challenges related to credit that hinder growth effort of the bank? 1.3. Objectives of the study

The study include general and specific objectives
1.4.1. General objective
The main objectives of this study are to assess credit management practice of AIB S.C like, loan processing, granting and collection. 1.4.2. Specific objectives
Some of the following are the specific objective
* To assess credit granting criteria being used by AIB of granting credit to customer. * To asses sequence of procedure for borrowers whose payment are overdue. * To assess what type of loan advanced or granted by AIB to the borrower. 1.4. Significance of the study

The study is very important for the bank, the customer, the researcher, and academicians. The main target of the study or its significance is: To evaluate the assessment of credit management in banking industry of the whole of Ethiopia specially by AIB on Ambo branch and give possible solution as to how credit officers should process credit under taken proper flow up measure when problems occur, the study is help full to the reader to have practically understanding to credit management in banking industries context. 1.5. Scope of the study

The banking activity of AIB most cover on Ambo town and surrounding of the area to give different service to customer like, loan service, saving service, deposit service to customers...
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