Description
CHAPTER ONE INTRODUCTION 1.0 Background of the Study Banks are financial institutions that are well-known for lending, borrowing, issuing, exchanging, taking deposits, safeguarding or handling money under the laws and guide lines of a particular country. In the midst of their activities, credit provision is the main product which banks provide to prospective business entrepreneurs as a main source of making income. While providing credit as a main source of generating income, banks take into account many considerations as reasons of credit management which facilitates them to curtail the risk of default that results in financial distress and bankruptcy. This is due to the reason that while banks providing credit they are uncovered to risk of default (risk of interest and principal repayment) which need to be supervised effectively to acquire the required level of loan growth and performance. The categories and degree of risks to which banks are exposed depends upon a number of reasons such as its size, complexity of the business activities, volume etc. It is said that generally banks face Credit, Market, Liquidity, Operational, Compliance /legal/ regulatory and reputation risks among which credit risk is known to have the undesirable impact on profitability and growth. For this reasons, the success of most commercial banks lies on the achievements in credit management to tone down risk to the acceptable level.