“Factor Affecting Credit Risk Management Practice: The Case Of Oromia Bank Finfinne District And Branches In Ejere Town”

Abstract

The study assessed factor affecting credit risk management practice of some selected private banks in Ejere. The study was identifying the factors that influence credit risk management practices of the banks focused on the five dimensions of service quality such as, on the establishment of credit granting process, credit risk measurement and monitoring processes, market risk, operational risk and legality risk. In these ways the study used both descriptive and explanatory research design and the data were analyzed using frequency, percentage, means, Std. Deviation, Pearson correlation as well as regression. The data were analyzed by using SPSS Package version 30. Based, on this the result of correlation coefficient shows that all variables are statistically significant and positively correlated with the credit risk management practice of the studied banks. Accordingly, the bank’s credit risk management was more affected by lack of establishing appropriate credit environment which represented, followed by challenges of credit appraisal measurement and monitoring, Lack of Market risk analyses, Operational risk and challenges sound Credit granting process, however, Legality of risk assessment has a negative relation and insignificant impact on credit risk management practices of the study banks. The Result regression coefficients also implied the extent of the independent variables influence on the dependent variables. This study analyzes data from 2019 to 2023 to examine key factors influencing credit risk management practices at Oromia Bank. The results show that all six variables ACRE, SCGP, CAMMP, MRM, ORA, and ALR—have a positive and statistically significant impact, with ACRE and SCGP being the most influential. The findings suggest that strengthening the credit risk environment and credit granting process, along with reinforcing monitoring, operational, and legal risk measures, will enhance effective credit risk management. Based on the findings the study recommend the following management bodies of the of the banks further investigate the main reason of that affect credit risk management practice of their respective banks and tried to create Continuous improvements on the major factors affecting credit risk management area.