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Risk Management Practices of Commercial Banks in Ethiopia: A Study on the Relationship between Risk Monitoring, Risk Identification, and Credit Risk Analysis with Risk Management Performance

Abstract

This study examines the relationship between risk monitoring (RMO), risk identification (RI), credit risk analysis (CRA) and risk management performance (RMPs) of commercial banks in Ethiopia. The study uses a survey-based approach to collect data from 111 commercial banks in Ethiopia. The results show that RMO, RI, and CRA are significant variables that explain 57.6% of the variations in RMPs.

Introduction

Risk management is a crucial aspect of banking operations, as it helps to identify, assess, and mitigate potential risks that may arise from various sources. Commercial banks in Ethiopia are no exception, as they face numerous risks such as credit risk, market risk, operational risk, and liquidity risk. This study aims to investigate the relationship between RMO, RI, CRA, and RMPs of commercial banks in Ethiopia.

Methodology

The study uses a survey-based approach to collect data from 111 commercial banks in Ethiopia. The questionnaire was designed to capture information on RMO, RI, CRA, and RMPs. The data were analyzed using descriptive statistics, Spearman’s correlation analysis, and linear regression analysis.

Results

The results show that there exists a positive relationship between independent variables such as URRM, RI, RAA, MRO, CRA, and RMPs, the dependent variable. RMO, RI, and CRA are found to be the most important and influential variables in RMPs. The estimated coefficients of RMO, RI, and CRA have positive and statistically highly significant impacts on RMPs.

Conclusion

The study concludes that commercial banks in Ethiopia can improve their risk management practices by giving more emphasis to RMO, RI, and CRA. The findings of this study provide valuable insights for policymakers, regulators, and bank managers to develop effective risk management strategies.

Recommendations

  • Commercial banks in Ethiopia should give more emphasis to their RMO practices.
  • Banks should identify potential risks early enough and take prompt actions to mitigate them.
  • Credit risk analysis should be conducted thoroughly to ensure that loans are extended to creditworthy borrowers.

References

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[4] Anwarul, K.M., Muzahidul, M., & Zaman, M. (2013). An empirical study on risk management in some selected conventional and Islamic banks in Bangladesh: A Comparative Study. Beykent University Journal of Social Sciences, 6(2), 105-124.

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