Credit risk management practices and its impact on loan repayment at St Peter’s cooperative credit union, Kumasi.

Abstract

The study of credit risk has become even more important in the wake of the recent near bankruptcy of two indigenous banks (UT Bank and Capital Bank), more especially among Credit Cooperatives where studies are limit in Ghana. A Credit Cooperative is a financial institution that is owned and controlled by its members and operated for the purposes of promoting thrift, providing credit at low interest rates and providing other financial services to its members. The primary objective of the study was to examine credit risk management practices and its impact on loan performance at St. Peter’s Cooperative Credit Union. The research was a case study, and adopted a quantitative technique. The population comprised of staff, management and members of the credit union. The study sampled 30 staff and management, and 140 members using convenience sampling technique. Mean scores, standard deviations, frequencies, percentages, line graphs and simple linear regression were used in the analysis of the primary and secondary data. The study concluded that, St. Peter’s had an effective credit risk management policy, which reflected in their loan performance. The study found a moderate correlation between credit risk management practices and the loan performance of the union. Holding all other things constant, a 100% improvement in the credit risk management practices, will lead to an increase in the loan performance (repayment) of St. Peters by 33.1%, and vice versa. This was statistically significant at 0.05. The union faced less challenge in the implementation of their credit risk management policy, and members also faced less challenge in the repayment of loan facility. It was recommended that, the union’s management must consider assessing the cost and benefits of their risk management approaches, and how to maximize returns for members (owners). Secondly, management must therefore invest in staff training to get them more equipped for their tasks.