The performance of credit management of united bank of africa (uba)

Project Abstract

The performance of credit management of United Bank of Africa (UBA) is a critical aspect of the bank's operations. Effective credit management is essential for the overall financial health and stability of a bank. This study aims to evaluate the credit management performance of UBA by analyzing key indicators such as credit risk assessment, loan portfolio quality, and loan loss provisions. The research methodology includes a comprehensive review of UBA's credit management policies and practices, as well as an analysis of financial data and performance metrics. The study will also compare UBA's credit management practices with industry best practices to identify areas for improvement. The findings of this research will provide valuable insights into the effectiveness of UBA's credit management practices and highlight areas that may require attention or enhancement. By evaluating the bank's credit risk assessment processes, loan portfolio quality, and provisioning for loan losses, this study will contribute to a better understanding of UBA's overall financial performance and risk management framework. The results of this research will be beneficial for UBA's management in identifying areas of strength and weakness in their credit management practices. This information can be used to make informed decisions on strategies for improving credit risk assessment, enhancing loan portfolio quality, and optimizing loan loss provisions. In conclusion, the performance of credit management at United Bank of Africa is a crucial aspect of the bank's operations that directly impacts its financial stability and profitability. This study aims to provide a comprehensive evaluation of UBA's credit management practices and offer recommendations for improvement. By analyzing key indicators such as credit risk assessment, loan portfolio quality, and loan loss provisions, this research will contribute to a better understanding of UBA's overall financial performance and risk management framework.

Project Overview

<p> <b><b></b></b></p><p><b><b><b>INTRODUCTION</b></b></b></p><p><b><b><b></b></b></b></p><b><b><b><p><b>1.1 &nbsp; &nbsp; &nbsp; Background of the Study</b></p><p><b></b></p><b><p>Banks<br>are financial institutions that are established for lending, borrowing,<br>issuing, exchanging, taking deposits, safeguarding or handling money under the<br>laws and guide lines of a respective country. Among their activities, credit<br>provision is the main product which banks provide to potential business<br>entrepreneurs as a main source of generating income.</p><p>While<br>providing credit as a main source of generating income, banks take into account<br>many considerations as a factor of credit management which helps them to<br>minimize the risk of default that results in financial distress and bankruptcy.<br>This is due to the reason that while banks providing credit they are exposed to<br>risk of default (risk of interest and principal repayment) which need to be<br>managed effectively to acquire the required level of loan growth and<br>performance.</p><p>The<br>types and degree of risks to which banks are exposed depends upon a number of<br>factors such as its size, complexity of the business activities, volume etc. It<br>is believed that generally banks face Credit, Market, Liquidity, Operational,<br>Compliance /legal/ regulatory and reputation risks among which credit risk is<br>known to have the adverse impact on profitability and growth. Hence, the<br>success of most commercial banks lies on the achievements in credit management<br>mitigating risk to the acceptable level.</p><p>Charles<br>Mensah (1999) stressed the importance of credit management as follows: Credit<br>management process deserves special emphasis because proper credit management<br>greatly influences the success or failure of financial institutions.</p><p>This<br>indicates that credit provision should be accompanied by appropriate and<br>attractive credit policies and procedures that enhance performance of credit<br>management and protects the banking industry from failure.</p><p>Credit<br>management means the total process of lending starting from inquiring potential<br>borrowers up to recovering the amount granted. In the sense of banking sector,<br>credit management is concerned with activities such as accepting application,<br>loan appraisal, loan approval, monitoring, recovery of non-performing loans, etc.<br>(Shekhar, 1985).</p><p>According<br>to Hettihewa, 1997, Credit Management is extremely important as granting credit<br>is considered to be the equivalent of investing in a customer.</p><p>However,<br>payment of the debt should not be postponed for too long as delayed payments<br>and bad debts are a cost to the company. Thus, Efficiency and effectiveness in<br>performing each steps of loan processing using various parameters has<br>significant effect on performance of credit management.</p><p>UBA<br>Share Company is one of the financial institutions engaged in providing short<br>and medium credit like other commercial banks in the country in general and in<br>the region in particular. In the last few years, both public and private<br>sectors in the economy underwent encouraging development in investment and<br>business activities, thus becoming the fertile ground for the banking industry.<br>Since its establishment in 1997 G.C, United Bank of Africa (UBA) has been<br>striving to exploit such and all other opportunities towards achieving its<br>corporate goals. The bank has been providing only short and medium loans and<br>advances to its customers because of its early stage of capital base and<br>liquidity position. The bank has been playing a significant role in providing<br>loans and advances to its customers that enhances the investment need in the<br>country and as means of generating income for its shareholders.</p><p>Hence,<br>the purpose of this study is to assess the performance of credit management<br>problems and strengths of United Bank of Africa (UBA) Share Company in Tigray<br>Region from different perspectives in light of the practices of modern credit<br>management in financial institutions.</p><p><b>1.2 &nbsp; &nbsp; &nbsp; Background<br>of the Banking Industry in Ethiopia</b></p><p><b></b></p><b><p>As<br>a result of the agreement reached between Emperor Minilik II and Mr.Ma<br>Gillivray, representative of the British owned National Bank of Egypt; modern<br>banking in Ethiopia began in 1905 with the Bank of Abyssinia, a private company<br>controlled by the Bank of Egypt In 1931. It was liquidated and replaced by the<br>Bank of Ethiopia which was the bank of issue until the Italian invasion of<br>1936. During the Italian occupation, Bank of Italy banknotes formed the legal<br>tender. Under the subsequent British occupation, Ethiopia was briefly a part of<br>the East Africa Currency Board. In 1943; the State Bank of Ethiopia was<br>established, with two departments performing the separate functions of an<br>issuing bank and a commercial bank. In 1963, these functions were formally<br>separated and the National Bank of Ethiopia (the central and issuing bank) and<br>the Commercial Bank of Ethiopia were formed.</p><p>In<br>the period to 1974, several other financial institutions emerged including the<br>state owned: The Agricultural and Industrial Development Bank (established<br>largely to finance state owned enterprises); The Savings and Mortgage<br>Corporation of Ethiopia; The Imperial Savings and Home Ownership Public<br>Association (which provided savings and loan services).</p><p>Major<br>private commercial institutions, many of which were foreign owned, included the<br>Addis Ababa Bank, the Banco di Napoli, the Banco di Roma.</p><p>However,<br>the banking business could not move further because of the nationalization of<br>private investments by the Socialist regime (the Dergue regime) that came into<br>power leaving only three government banks; the National Bank of Ethiopia, the<br>Commercial Bank of Ethiopia and agricultural and Industrial Development Bank.</p><p>This<br>was reversed when the Socialist regime was overthrown in 1991. Following the<br>overthrown of the Dergue regime in 1991, the EPRDF declared a liberal economic<br>system. In line with this, Monetary and Banking proclamation of 1994<br>established the National Bank of Ethiopia (NBE) as a judicial entity, separated<br>from the government and outlined its main function.</p><p>Monetary<br>and Banking proclamation No.83/1994 and the Licensing and Supervision of<br>Banking Business No.84/1994 laid down the legal basis for investment in the<br>banking sector (<a target="_blank" rel="nofollow" href="http://www.nbe.gov.com)">www.nbe.gov.com)</a>.</p><p>After<br>the proclamation of 1994, the first private bank, Awash International Bank was<br>established in 1994 by 486 shareholders paving a way to the establishment of<br>related private banks such as Dashen Bank ( 1995), Abyssinia Bank (1996),<br>Wgegan Bank (1997), United Bank (1998), Nib International Bank (1999),<br>Cooperative Bank of Oromia (2004), Lion International Bank (2006), Oromia<br>International bank (2008), Zemen Bank (2006), Buna International Bank (2009),<br>Birhan International Bank (2009), and others which are under establishment.</p><p><b>1.3 &nbsp; &nbsp; &nbsp; Statement<br>of the Problem</b></p><p><b></b></p><b><p>According<br>to Shekhar, 1985, credit plays an important role in the lives of many people<br>and in almost all industries that involve monetary investment in some form.<br>Credit is mainly granted by banks including to several other functions like<br>mobilizing deposits, local and international transfers, and currency exchange<br>service.</p><p>Hence,<br>the issue of credit management has a profound implication both at the micro and<br>macro level. When credit is allocated poorly it raises costs to successful<br>borrowers, erodes the fund, and reduces banks flexibility in redirecting<br>towards alternative activities. Moreover, the more the credit, the higher is<br>the risk associated with it. The problem of loan default, which is resulted<br>from poor credit management, reduces the lending capacity of a bank. It also<br>denies new applicants’ access to credit as the bank’s cash flow management<br>problems augment in direct proportion to the increasing default</p><p>Problem.<br>In other words, it may disturb the normal inflow and outflow of fund a bank has<br>to keep staying in sustainable credit market.</p><p>Hence,<br>credit evaluation decisions are important for the financial institutions<br>involved due to the high level of risk associated with wrong decision. The<br>process of making credit evaluation decision is complex and unstructured. This<br>complex and unstructured decision making process of credit evaluation needs<br>proper credit management by the concerned banks.</p><p>Adequately<br>managing credit in financial institutions (FIs) is critical for the survival<br>and growth of the FIs. In the case of banks, the issue of credit management is<br>of even greater concern because of the higher levels of perceived risks<br>resulting from some of the characteristics of clients, business conditions and<br>economic environment in which they find themselves.</p><p>The<br>very nature of the banking business is so sensitive because more than 85% of<br>their liability is deposits mobilized from depositors (Saunders, Cornett,<br>2005). Banks use these deposits to generate credit for their borrowers, which<br>in fact is a revenue generating activity for most banks. This credit creation<br>process, if not managed properly, exposes the banks to high default risk which<br>might led to financial distress including bankruptcy. All the same, beside<br>other services, banks must create credit for their clients following prudent<br>credit management procedure to make some money, grow and survive in stiff<br>competition at the market place.</p><p>Even<br>though a preliminary study is made in preparing the master business plan for<br>the opening of branches; little work is done in studying the performance of<br>credit management of the branches that would alleviate the problems encountered<br>and contribute to the growth of market share and income generation of the bank.<br>Hence the researcher is interested to the research area in particular and to<br>the contribution and object of the bank in general in assessing the gaps in<br>credit management performance which is crucial to be studied in the prevailing<br>stiff competition in line of the modern financial measurements.</p><p>Therefore,<br>the principal concern of this study is to assess the performance of credit<br>delivery and management in United Bank of Africa (UBA) Share Company in Tigray<br>Regional State.</p><p><b>1.4 &nbsp; &nbsp; &nbsp; Research Questions</b></p><p><b></b></p><b><p>1. &nbsp; &nbsp; &nbsp; &nbsp; Does<br>the Bank consistently comply with its policy and procedures in entertaining its<br>loan applicants, loan processing, and collecting?</p><p>2. &nbsp; &nbsp; &nbsp; &nbsp; To<br>what extent is the Bank accelerating the performance of credit management in<br>line to its policy and national banks requirement?</p><p>3. &nbsp; &nbsp; &nbsp; &nbsp; Do<br>loan customers of the Bank support the prevailing loan policy and procedures<br>that could result long lasting relationship?</p><p>4. &nbsp; &nbsp; &nbsp; &nbsp; To<br>what level is the Bank building up quality loans arresting non- performing<br>loans in line to its policy and National Bank’s requirement.</p><p><b>&nbsp;</b></p><p><b></b></p><b><p><b>1.5 &nbsp; &nbsp; &nbsp; Justification of the Study</b></p><p><b></b></p><b><p>Based<br>on the monetary and Banking proclamation No.83/1994 which laid down the legal<br>basis for investment in the banking sector a number of private commercial banks<br>are under establishment opening their head quarter at Addis Ababa which is the<br>capital city of Ethiopia and striving to stretch their branches to all regions<br>as a strategy to build up market share.</p><p>United<br>Bank of Africa (UBA) Share Company is one of the leading private commercial<br>banks playing its role in opening about 48 branches in the country. Of which 23<br>branches are in Addis Ababa, the major business center and the capital city of<br>the country, and the rest 25 branches are at different regions. (Annual report<br>of 2008/09)</p><p>Out<br>of these branches in different regions 7 (seven) branches are opened in Tigray<br>Region. However, though a preliminary study is made in preparing the master<br>business plan for the opening of branches, little work is done in studying the<br>performance of credit management of the branches that would alleviate the<br>problems encountered and</p><p>Contribute<br>to the growth of market share and income generation of the bank. Hence the<br>researcher is interested to the research area in particular and to the<br>contribution and object of the bank in general in assessing the gaps in credit<br>management performance which is crucial to be studied in the prevailing stiff<br>competition in line of the modern financial measurements.</p><p><b>1.6 &nbsp; &nbsp; &nbsp; Objective<br>of the Study</b></p><p><b></b></p><b><p><b>1.6.1<br>&nbsp; General objective</b></p><p><b></b></p><b><p>The<br>main objective of the study is to evaluate the performance of credit management<br>of United Bank of Africa (UBA) in Tigray region as compared to National Bank<br>requirements vis à vis its credit policy and procedures.</p><p><b>1.6.2 &nbsp; Specific objectives</b></p><p><b></b></p><b><p><b>&nbsp;</b></p><p><b></b></p><b><p>1. &nbsp; &nbsp; &nbsp; &nbsp; To<br>evaluate the compliance of the Bank to its policies and procedures in<br>processing loan applications.</p><p>2. &nbsp; &nbsp; &nbsp; &nbsp; To<br>evaluate the ability of the Bank in creating credit and collecting its loan on<br>their due date.</p><p>3. &nbsp; &nbsp; &nbsp; &nbsp; To assess<br>the perception of the customers towards the Bank’s policy in relation to its<br>loan provision.</p><p>4. &nbsp; &nbsp; &nbsp; &nbsp; To<br>evaluate the Bank’s credit quality as compared to National Bank’s requirements<br>and its credit policy.</p><p><b>1.7 &nbsp; &nbsp; &nbsp; Significance<br>of the Study</b></p><p><b></b></p><b><p>Loans<br>and advances are known to be the main stay of all commercial banks. They occupy<br>an important part in gross earnings and net profit of the banks. The share<br>advances in the total asset of the banks forms a lion share (almost more than<br>60 percent) and as such it is the back bone of banking sector. Bank lending is<br>very crucial for it makes possible the financing of agricultural, industrial,<br>construction, and commercial activities of a country. The strength and<br>soundness of the banking system primarily depends upon health of the advances.<br>Therefore the ability of banks to formulate and adhere to policies and<br>procedures that promote credit quality and curtail non-performing loans is the<br>means to survive in the stiff competition. In ability to create and build up<br>quality loans and credit worthy customers leads to default risk and bankruptcy<br>as well as hampers economic growth of a country. However, little work is done<br>to search the ways and means that enable to quality loan creation and growth as<br>well as to determine the relationship between the theories, concepts and credit<br>policies both at country level or regional level.</p><p>Hence,<br>this study is assumed to be significant in indicating best practice and<br>concepts for prudent lending to enhance the performance of credit management to<br>all managers and policy makers of the bank as well as to all financial<br>institutions and banks. Moreover, it may help as a benchmark for researchers<br>who are interested in the area to extend it further.</p><p><b>1.8 &nbsp; &nbsp; &nbsp; Scope<br>of the Study</b></p><p><b></b></p><b><p>The<br>study is concentrated on United Bank of Africa (UBA) Share Company branches<br>found in Tigray Regional state. This is because; it is one of the private banks<br>working with leading area coverage in the Region yet.</p><p>The<br>study covered credit policies, procedures, and credit operations of the Bank.<br>It assessed whether the loan growth and performance is to the required level of<br>the bank or not. In addition, the study is concerned with identifying the major<br>reasons for best practices of credit management, loan growth, and causes of<br>loan default if any in the region. Since the lending rules and procedures of<br>the bank is the same in all its branches, the result obtained taking case study<br>of this specific region is assumed to reflect the situation of all branches of<br>the bank in the country under normal circumstance.</p><p><b>1.9 &nbsp; &nbsp; &nbsp; Limitation<br>of the Study</b></p><p><b></b></p><b><p>Though<br>studying at full-fledged level of the bank would have better result, due to the<br>time and finance constraints the researcher is limited to undertake the study<br>in seven branches located in Tigray regional state. The branches are stretched<br>from Mekelle to Humera in the region and this has entailed transportation<br>problem, hardship, and time scarcity. The constraint of time had significant<br>impacts on the study.</p><p><b>&nbsp;</b></p><p><b></b></p><b><p><b>1.10 &nbsp; &nbsp; Organization of the Study</b></p><p><b></b></p><b><p>The<br>Study is organized into six chapters. The first chapter introduces the<br>background of the study, the research objectives and questions, significance of<br>the study, scope of the study, limitation of the study and organization of the<br>study. The second chapter presents theoretical and empirical review of the<br>related literatures. The third chapter deals with methodology of the study. The<br>fourth chapter is concerned with the background of the organization and the<br>fifth chapter describes the analysis, results and discussions. The sixth<br>chapter presents the conclusion and recommendations drawn from findings of the<br>data in addition with implications for further research.</p><div>Get Complete Project Now »</div><p></p><p><b>Talk to us right now: (+234)906-451-7926 (Call/WhatsApp)</b></p></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b> <br><p></p>