Evaluating the Credit risk identification Methods used by Ghanaian Commercial Banks in Agricultural Finance

Commercial banks’ lending to the agriculture sector in Ghana is characterised by high credit risks even though empirical evidence suggests that commercial banks can minimise this by using appropriate methods to identify and mitigate the adverse effects of credit risks. This implies that the credit r...

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Bibliographic Details
Published in:African journal of business and economic research 2024-09, Vol.19 (3), p.417-433
Main Authors: Nyebar, Abraham, Obalade, Adefemi A., Muzindutsi, Paul-Francois
Format: Article
Language:English
Subjects:
Agricultural finance
Agricultural industry
Agriculture
Bank loans
Commercial banks
Credit management
Credit managers
Credit risk
Finance
Ghana
Methods
Mixed methods research
Risk identification methods
Risk management
Side effects
Surveys
Tax policy
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Summary:Commercial banks’ lending to the agriculture sector in Ghana is characterised by high credit risks even though empirical evidence suggests that commercial banks can minimise this by using appropriate methods to identify and mitigate the adverse effects of credit risks. This implies that the credit risk management practices adopted by Ghanaian commercial banks are inadequate and ineffective. This study investigated the methods adopted by Ghanaian commercial banks to identify credit risks in agricultural finance. A mixed-methods research approach was adopted using copies of a survey questionnaire and in-depth interviews. Findings indicated that some of the methods used by commercial banks to identify credit risks in agricultural finance do not meet commercial banks’ credit risk management (CRM) needs. Further, credit referencing bureaus and credit portfolio methods that proved effective in minimising credit risks are not frequently used by the banks to identify credit risks in agricultural finance. The study recommended effective use of reliable credit risk identification methods to identify and minimise credit risks associated with agricultural finance. It further stressed the need for an effective credit referencing bureau system in Ghana.
ISSN:1750-4554
1750-4562
DOI:10.31920/1750-4562/2024/v19n3a19