An Analysis of Risk Associated with Bank Lending (A Case Study of Ecobank, Ghana)

ABSTRACT

This study examines the credit appraisal process and repayment of Bank loans at Ecobank. Specifically, the study investigates the appropriateness of the credit appraisal process of Ecobank, the relationship between loan officers and customers and the effect of loan officer – customer relationship on the credit appraisal process. The study also identifies strategies to help improve the credit appraisal process of the Bank. A face-toface household-level survey of 142 respondents is conducted in Ashanti Region, Ghana in 2017 with a structured questionnaire. The subjects for the study are formal and informal sector workers. On the appropriateness of the credit appraisal process, the factors are loan processing time, nature of collateral, loan diversion, credit scoring and evaluation, loan amount disbursement, loan repayment and loan default. The study also finds out the loans department offers excellent reception to all customers irrespective of the loans officer’s relationship with the customer. Loan officers provide assistance to most customers in completing the loan form and also advise them on how to invest the loan amount in the intended business or project. The relationship between loan officers and customers has almost no effect on loan repayment. Majority of customers who defaults loan repayment has no relationship with loan officers. Also, there should be a thorough screening of the borrowers before loans are disbursed. Further, there should be supervisory visits by credit officers after loans have been disbursed to ensure proper use of the borrowed funds thereby enhancing the chances for higher profitability of enterprises and loan repayment. Also, loan repayment period should be set in accordance with the financial viability of the project, loan size and market situation.