Mr. Waqas Khan, Ms. Adila Ahmadi

Volume 2 Issue 2 | Jun 2019

DOI: 10.31841/KJEMS.2021.56

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Abstract

The paper analyzes the comparative credit risk management (CRM) practices of public and private banks in Afghanistan. The objective was to evaluate the extent to which public and private banks in Afghanistan use credit risk management practices in dealing with different types of risk and to assess the factors that influence effectiveness of Credit Risk Management practices. Stratified random sampling technique was used to select 108 respondents. These respondents are involved in the credit departments of the banks. For the purpose of analyzing comparative CRM practices, the study used mean analysis with the help of t-tests and standard deviations. The paper reveals that Public and Private Banks in Afghanistan make use of credit risk management practices that include thorough loan appraisal, asking for collateral and checking the credit history of the borrowers. Additionally, the bankers use covenants, credit rationing, loan securitization, and loan syndication as risk management defensives. The factors that influence effectiveness of credit risk management systems used by public and private banks in Afghanistan include establishment of a credit policy that clearly outline the scope and allocation of bank credit facilities, maintenance of a credit administration system that with adequate controls over credit; top management support; communication of credit guidelines to every officer in the credit department, screening of potential borrowers, employing well trained staff, constant review of the borrowers’ liquidity and the use of supportive technology in credit analysis. It was also found that overall private banks’ credit risk management practices are better than public banks.