Credit Risk Management in Zimbabwe - 5735 Words

European Journal of Business and Management ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol 4, No.1, 2012 www.iiste.org An Analysis of the Challenges Faced by Banks in Managing Credit in Zimbabwe Severino Mavhiki1 Denver Mapetere1* Christopher Mhonde,1 1. Faculty of Commerce, Business Management Department, Midlands State University, P bag 9055 Gweru, Zimbabwe * E-mail of the corresponding author: mapetered@msu.ac.zw Abstract The purpose of the study is to analyse the challenges facing banks in managing credit in Zimbabwe in the wake of the multicurrency regime that was introduced in the year 2009. The study is relevant considering that banks have an important role of financing the undercapitalised productive sectors .The chi-square†¦show more content†¦H2: Banks general approach to lending affects the capacity of the bank to manage risk. H3: Loan concentration by banks has increased their risk of exposure. H4: Interbank lending can help reduce exposure. H5: Retention of money by banks can help minimise exposure. 2 Literature review www.iiste.org 2.1 The Concept of Credit management Banks raise funds by collecting deposits from businesses and individual depositors and makes out loans to individuals, businesses and the government through buying bonds. Thus the primary assets of banks are loans and bonds while primary liabilities are made of deposits. According to Saunders and Cornett (2005), a banks balance sheet has loans representing the majority of a banks assets, but the loans come with risk. If the bank makes bad loans to firms or consumers for example, the bank will be in a crisis if those loans are not repaid. Credit management is thus fraught with rewards and risks that need to be balanced through judicious and prudent risk management, failure of which may lead to litigation, financial loss or damage of the banks reputation (RBZ Guideline No. 1 2006). Lending activities have been controversial and a difficult matter especially in developing and emerging countries (Richard 2006). This is because business firms on one ha nd are complaining about lack of credits and theShow MoreRelatedEvaluating The Effectiveness Of Credit Risk Management Tools Essay1565 Words   |  7 Pagesloans arise from credit risk or default risk which as defined by Jorion(2003) is the risk of an economic loss from the failure of a counterparty to fulfill its contractual obligations. Its effect is measured by the cost of replacing cash flows if the other party defaults. Credit risk can thus be seen to contribute significantly to the profitability of an organization and hence the need to hedge against such risk. This study aims to assess the effectiveness of credit risk management tools which areRead MoreHistorical Background Of Manufacturing Smes1217 Words   |  5 Pagesbackground of manufacturing SMEs in Zimbabwe. The other issues to be highlighted and discussed include problem statement, purpose or justification of the study, objectives of the study, research questions, research hypothesis, significance of the study, resea rch assumptions, scope or delimitations of the study, ethical considerations and a summary. 1.2 Background to the study (60) Small to medium enterprises (SMEs) have become increasingly important to Zimbabwe s economic growth. 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