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AFRICAN CENTER FOR ADVANCED STUDIES IN
MANAGEMENT
ECOBANK
Ecobank Ghana Limited
PROBLEM LOANS MANAGEMENT PRACTICES:
ECOBANK GHANA LIMITED AS A CASE STUDY
By
Katoh Hamadou KONE
Being a dissertation submitted in partial fulfilment
of the
requirements for the award of the
MBA in Banking and Finance
April 2006
To my Mother, for her tireless support
May the Almighty God bless and reward You for All.
Hamed
TABLE OF CONTENTS
ACKNOWLEDGEMENT vi
FOREWORD vii
EXECUTIVE SUMMARY 1
RESUME DE L'ETUDE 3
CHAPTER 1: INTRODUCTION 5
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I.
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Background of the study
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5
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II.
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Purpose of the study
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7
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III.
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Research problem
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7
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IV.
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Research methodology
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8
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1.
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Data collection
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8
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2.
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Data analysis and interpretation
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9
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V.
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Significance of the study
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9
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VI.
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Limitations of the study
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9
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VII.
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Structure
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10
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CHAPTER 2: LITERATURE REVIEW 11
I. Basic theoretical framework 11
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1.
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Problem loans and asymmetrical information
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11
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2.
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Problem loans, adverse selection and moral hazard
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12
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3.
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Problem loans and early warning systems
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14
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II.
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Lessons from world banks crises
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15
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III.
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Role of Supervisors and External auditors in identifying problem
loans
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19
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1.
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The role of banking supervision
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20
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2.
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The contribution of external auditors
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21
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IV. «Problem loans», «Bad loans» and
«Non-performing loans»: definitions and
recommended practices 22
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1.
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World Bank
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22
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2.
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International Monetary Fund
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24
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3.
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West African Monetary Union
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24
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4.
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Bank of Ghana
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25
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V. Soundness problem loans management criteria 27
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1.
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Credit Risk Management
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27
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2.
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Loans classification and provisioning
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28
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3. Remedial management 28
CHAPTER 3: CREDIT RISK MANAGEMENT PROCESSES 30
I. Credit management process 30
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1.
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Credit initiation
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31
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2.
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Documentation and disbursement
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32
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3.
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Credit administration
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32
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II. Problem loans management 32
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1.
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Early Warning Systems
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33
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2.
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Credit classification and provisioning
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34
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3.
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Remedial management
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35
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CHAPTER 4: DATA ANALYSIS AND INTERPRETATION 36
I. Data collection 36
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1.
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Sample selection
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36
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2.
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Variables
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37
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3.
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Data collection method
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38
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II. Data analysis methodology 39
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1.
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Classification
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39
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2.
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Provisioning
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39
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3.
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Remedial strategy
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39
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III. Outcome of data collection 40
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1.
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Classification
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40
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2.
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Provisioning
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40
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3.
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Remedial strategy
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40
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IV. Data analysis and interpretation 41
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1.
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Dissimilarities in classification
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41
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2.
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Dissimilarities in remedial strategies
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42
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CHAPTER 5: RECOMMENDATIONS AND CONCLUSION 43
I. Pre-lending recommendations 43
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1.
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Industry risks
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43
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2.
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Collateral risks
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43
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3.
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Information system
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44
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4.
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Size and ownership of the companies
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44
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5.
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Portfolio growth incentives
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44
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6. Companies dealing with governments 45
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II.
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Credit monitoring
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45
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III.
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Workout strategies
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45
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1.
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Effective teamwork
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45
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2.
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Incentives
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45
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3.
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Additional risks
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46
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4.
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External debt collectors
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46
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5.
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Enforcement of collateral
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46
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IV. Conclusion 47
BIBLIOGRAPHY 48
APPENDIX 51
ACKNOWLEDGEMENT
Before starting with the study, allow me to thank people and
organizations without whom this
study may not be completed.
My first words go to international institutions that created
and are still supporting the MBA in Banking and Finance, especially the African
Capacity Building Foundation that granted me a scholarship to attend the
Program. May you keep strong to continue sustaining African development
through training programs and others.
Special thanks also to the academic staff for providing
us with up to date knowledge in banking and finance and the project
manager and his short and dynamic team.
The Ecobank Group and particularly its subsidiary of Ghana,
Ecobank Ghana Limited, played
a key role in the completion of this study. I thank
the bank for its hospitality during those three months at Trade Finance
and Risk Management Departments and wish you to remain a key role player in the
African financial environment.
I cannot forget Mr. Theophilus Aryee, Director of
my dissertation for his effective commitment to the work. To him I will
say «I learnt a lot from you and expect to do more».
I end by my large family that I would like to thank for their
moral and financial support. I
pray for the time to allow all of you to get the proceeds of your
investment.
vi MBA in Banking and Finance
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