Credit Risk Management

Only available on StudyMode
  • Topic: Credit risk, Credit rating, Bank
  • Pages : 32 (9145 words )
  • Download(s) : 172
  • Published : October 31, 2010
Open Document
Text Preview
School of Technology and Society

MASTER DEGREE PROJECT

Title: BANK PERFORMANCE AND CREDIT RISK MANAGEMENT

Master Degree Project in Finance Level ECTS: 15 Spring term Year: 2008 Takang Felix Achou Ntui Claudine Tenguh Supervisor: YingHong Chen (PhD) Examiner: Bernd-Joachim Schuller (PhD)

ACKNOWLEDGEMENT

We would like to express our immense thankfulness to all those who gave us the possibility to complete this thesis. We would like to thank the library staff of the University of Skovde for their relentless effort in making access to research data and literature possible. We are bound to all our lecturers for their motivating effort in transferring knowledge. Also, our most profound gratitude goes to our parents, husband, siblings, friends and relatives for their unconditional love and steadfast support always.

Especially, we are deeply indebted to our supervisor Dr.Yinghong Chen, whose support, interest, encouragement and stimulating suggestions helped us during the research and writing process of this thesis.

Above all, we thank you Almighty God for all your mercies.

2

ABSTRACT

Banking is topic, practice, business or profession almost as old as the very existence of man, but literarily it can be rooted deep back the days of the Renaissance (by the Florentine Bankers). It has sprouted from the very primitive Stone-age banking, through the Victorian-age to the technology-driven Google-age banking, encompassing automatic teller machines (ATMs), credit and debit cards, correspondent and internet banking. Credit risk has always been a vicinity of concern not only to bankers but to all in the business world because the risks of a trading partner not fulfilling his obligations in full on due date can seriously jeopardize the affaires of the other partner. The axle of this study is to have a clearer picture of how banks manage their credit risk. In this light, the study in its first section gives a background to the study and the second part is a detailed literature review on banking and credit risk management tools and assessment models. The third part of this study is on hypothesis testing and use is made of a simple regression model. This leads us to conclude in the last section that banks with good credit risk management policies have a lower loan default rate and relatively higher interest income.

3

TABLE OF CONTENT

TITLE

PAGES

Acknowledgement………………………………………………………2 Abstract………………………………………………………………….3 Table of content…………………………………………………………4 SECTION ONE: BACKGROUND TO THE STUDY 1.1 Background to the study…………………………………………….6 1.2 Statement of the problem…………………………………………….7 1.3 Objective of the study………………………………………………..8 1.4 Layout of the study…………………………………………………...9 SECTION TWO: LITERATURE REVIEW 2.1 Credit Risk Management……………………………………………..9 2.2 The Bank for International Settlement and the Basle Accords………11 2.3 Value at Risk……………………………………….............................14 2.4 Portfolio Theory and Traditional method to Credit risk management...15 2.5 Supervisory Authority of Bank Credit risk management……………...19 2.6 Managing credit risk using Financial Ratios…………………………..21 2.7 Credit risk models ……………………………………………………..23

SECTION THREEE: HYPOTHESIS TESTING 3.1 Research Design………………………………………………………...27

4

3.2 Hypothesis….......................................................................................27 3.3 Data description……………………………………………………...27 SECTION FOUR: CONCLUSION AND SUGGESTIONS 4.1 Conclusion…………………………..................................................32 4.2 Suggestions………………………………………………………….32 References…………………………………………………………….....34 List of Equations………………………………………………………....35 List of Tables …………………………………………………………….36

5

SECTION ONE: BACKGROUND TO STUDY

1.1-Background to the study:

Adequately managing credit risk in financial institutions (FIs) is critical for the survival and growth of the FIs. In the case of banks, the issue of credit risk is of...
tracking img