II. Purpose of the study
The purpose of this study is to improve problem loans
management practices at Ecobank
Ghana Ltd. Critical related objectives are as follows:
- understand the Credit Risk Management Processes in the Bank
- assess the existing Problem Loans Management Systems of
the Bank and compare these systems to best practices
- make recommendations to improve the Problem Loans Management
Systems of the Bank.
III. Research problem
The problem to be solved can be summarized in the following
question:
How can the losses due to problem loans be reduced at
Ecobank Ghana Limited?
Related questions to ask include:
1. What are the Credit Risk Management processes of the Bank?
2. What measures are taken to prevent the creation of problem
loans?
7 MBA in Banking and Finance
3.What are the existing Problem Loans Management Systems?
IV. Research methodology
In order to take a broader and complementary view of the research
problem the triangulation
methodology (Hussey and Hussey, 1997), a mix of both
phenomenological and positivistic paradigms was adopted. Denzin
(1970) defines triangulation as «the combination of
methodologies in the study of the same phenomenon». He argues
that the use of different methods by a number of researchers studying
the same phenomenon should, if their conclusions are the same, lead to
greater validity and reliability than a single methodological approach. The
use of this methodology was also motivated by the mixed nature of
the research questions requiring qualitative and quantitative data.
The methodology consisted of two steps:
- data collection
- data analysis and interpretation
1. Data collection
The data collection format depended on the kind of data to be
collected.
a. Interviews
To answer the first two questions of the research problem (credit
risk management processes and prevention measures) interviews were held with
the Bank's credit portfolio analyst. Information were also collected from the
Group Credit Policy and Procedure Manual, which
is the set of principles, procedures and controls that govern the
entire credit risk management process.
b. Questionnaires
The last question was answered through questionnaires. Problem
loans files were sampled and questionnaires containing closed questions were
used to focus on key actions for addressing problem loans. A longitudinal
study to follow the behavior of our variables throughout a period has
been made.
8 MBA in Banking and Finance
2. Data analysis and interpretation
Data collected from the interviews were analyzed separately and
compared to best practices.
Both similarities and discrepancies with relevant explanations
for the observed deviations as and when necessary were also analyzed and
interpreted. Dissimilarities were analyzed and explanations why the Bank's
practices were not complying with ours were provided.
V. Significance of the study
This study is significant because it deals with an issue banks
are facing and will continue to
confront in the future. According to the IMF, the
average level of non-performing loans (NPLs) in Ghana is around 25%
of the total loans. The institution also underlined that the
definition of a non-performing loan in Ghana and the associated provisioning
modalities were rather lax compared with other countries'. That means NPLs have
been underestimated. At
the same time, the Bank of Ghana in its last Financial Stability
Report (FSR May 2005) was estimating the NPL ratio at 15.7%.
This shows the challenge of «Problem Loans»
needs to be explored to set standards of definition because its
definition is «intrinsically elusive and subjective» (Fuchita,
2004). There is also need to find strategies to manage them well and to work
out.
The universal bank nature of Ecobank Ghana keeps the study of
great importance despite the bank's relative performance. The NPL ratio of the
bank is fluctuant (from 3.4% in 2002, to
4.2% in 2003 and 3.9% in 2004). For that reason, it is useful to
direct this study in order to reduce and keep the ratio as low as possible.
This study has also a particular importance for the whole
ECOBANK GROUP because it is a universal banking Group8
characterized by an upward trend of development and a growing demand for
money to develop the economies. The study will also provide a benchmark for
other affiliates of the Group.
VI. Limitations of the study
Although this study has been completed successfully, there
were practical difficulties. The
time available was short for an in-depth understanding of
the Ghanaian market, which is
8 Ecobank operates in 12 countries: Benin, Burkina
Faso, Cameroon, Côte d'Ivoire, Ghana, Guinea, Liberia, Mali, Niger,
Nigeria, Senegal and Togo.
9 MBA in Banking and Finance
relatively new to the writer. There were also difficulties to
find relevant materials related to the field of study were also encountered.
Although the issue of problem loans has important
accounting dimensions (provision and interest dealing), these were not
analyzed in depth because the focus of the study is fixed on
the lending practices in the Bank with the view to improving the
problem loan situation.
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