Effectiveness of Credit Risk Management in Sri Lankan Banks

 

Effectiveness of Credit Risk Management in Sri Lankan Banks

 

1.0 Introduction

As initially drafted, the working title of this research is: Effectiveness of Credit Risk Management in Sri Lankan Banks. The paper presents a proposal to explore how Sri Lankan banks approach credit risk management and how successful it is. The study will be conducted with reference to Sri Lankan banks identified as Commercial Bank of Ceylon, Hatton National Bank and Nations Trust Bank. These banks are three of the leading commercial banks in Sri Lanka.

 

2.0 Background of the Study

Credit risk refers to the risk of loss because of debtor’s non-payment of a loan or other forms of credit. As they default, delay in repayments, restructuring of borrower repayments and bankruptcy are also considered as additional risks. When it comes to banking, credit risk is apparent on lending services to clients. There is the need for an effective employment of credit scorecard for the purpose of ranking potential and existing customers according to risk. In this will be based the appropriate measures to be applied by the banks. Nevertheless, banks charge higher price for higher risk customers. Credit limits and security are set so that credit risk would be controlled.

Credit risks are faced by lenders to consumers, lenders to business, businesses and even individuals. Credit risks, nevertheless, are most encountered in the financial sector particularly by the institutions such as banks. Credit risk management therefore is both a solution and a necessity in the banking setting. The global financial crisis also requires the banks to regain enough confidence by the public not only for the financial institutions but also the financial system in general and to not just rely on the financial aid by the governments and central banks. It is critical for the banks to engage in better credit risk management practices. Sri Lankan banks are not an exemption.

 

3.0 Problem of the Study

The problem focus of this study is the investigation of how effective the management of credit risks by the three leading commercial banks in Sri Lanka.

1)    How do Sri Lankan banks protect the interests of the bank and the interests of the borrowers?

2)    What are the implemented methods/strategies/techniques in managing credit risk?

 

 

4.0 Objective of the Study

The main aim of the study is to analyse the credit risk management practices in Sri Lankan banks. In lieu with this, the following research objectives will be addressed:

• To explore how credit risk management works for the banks and the borrowers


• To analyse how effective are the applied practices in managing credit risk

 

5.0 Research Methodology

The study will explore the problem in an interpretative view, using a descriptive approach which uses observation and surveys. To illustrate the descriptive type of research, Creswell (1994) will guide the researcher when he stated: descriptive method of research is to gather information about the present existing condition. The purpose of employing this method is to describe the nature of a situation, as it exists at the time of the study and to explore the causes of particular phenomena. The researcher opted to use this kind of research considering the desire of the researcher to obtain first hand data from the respondents so as to formulate rational and sound conclusions and recommendations for the study.

            Primary and secondary research will be integrated. The reason for this is to be able to provide adequate discussion for the readers that will help them understand more about the issue and the different variables that involve with it. In the primary research, public managers will be surveyed. A structured questionnaire will be developed and it will be used as the survey tool for the study. On the other hand, sources in secondary research will include previous research reports, newspaper, magazine and journal content. Existing findings on journals and existing knowledge on books will be used as secondary research. The interpretation will be conducted which can account as qualitative in nature.

 

6.0 References

 

Creswell, J W 1994, Research design. Qualitative and quantitative approaches, Sage Publications, Thousand Oaks, California.

 

 

7.0 Timeframe

 

TASK

Weeks

1st

2nd

3rd

4th

5th

6th

7th

8th

9th

10th

11th

12th

Read Literature

 

 

 

 

 

 

 

 

 

 

 

 

Finalize Objectives

 

 

 

 

 

 

 

 

 

 

 

 

Draft Literature Review

 

 

 

 

 

 

 

 

 

 

 

 

 

Devise Research Approach

 

 

 

 

 

 

 

 

 

 

 

 

Review Secondary Data

 

 

 

 

 

 

 

 

 

 

 

 

Organize Survey

 

 

 

 

 

 

 

 

 

 

 

 

Develop Survey Questions

 

 

 

 

 

 

 

 

 

 

 

 

Analyze Secondary and Primary Data

 

 

 

 

 

 

 

 

 

 

 

 

Evaluate Data

 

 

 

 

 

 

 

 

 

 

 

 

Draft Findings Chapter

 

 

 

 

 

 

 

 

 

 

 

 

Complete Remaining Chapters

 

 

 

 

 

 

 

 

 

 

 

 

Submit to Tutor and Await Feedback

 

 

 

 

 

 

 

 

 

 

 

 

Revise Draft and Format for Submission

 

 

 

 

 

 

 

 

 

 

 

 

Print, Bind

 

 

 

 

 

 

 

 

 

 

 

 

Submit

 

 

 

 

 

 

 

 

 

 

 

 

 

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