Kush land College, Waliso Campus

School of Business and Economics

Department of Masters of Business Administration (MBA)

Individual Assignment
Course of Business Research Methodology

Prepared By: Takelech Kebede --------------------------------------- ID.NO

Submitted to: Dessalegn G. (PHD)

Aug, 2023 G.C

Waliso, Ethiopia
LIST OF ABBREVIATIONS
BCP: Bank credit policy
CMA: Credit Management approach
CRM: Credit Risk management
DBE: Development Bank of Ethiopia
DRA: Diversity of Risk Approach
MRA: Minimal risk approach
PRA: Price of risk approach

i
ABSTRACT
The aim of study to asses the credit risk management practice of the development bank of
Ethiopia at Harar branch, which is found in Harar Town. The study will be assessing the
company’s failure to manage credit risks that affect their financial institution and this study tries
to find out how the credit risk management practice apply in the bank. The researcher will be
attempte to collect data from selected employees and management, through questionnaire in
order to collected the necessary and relevant data required for the completion of this paper. The
collected data are analyzed, reported and presented. Finally based in the major findings of the
study, the researcher will be drawn conclusions and recommendations are forwarded as stated
in the next chapter. In addition, the researcher also hopes that, this study will bring the valid,
constant and justifiable solution as to avoid the problem

ii
Table of Contents
LIST OF ABBREVIATIONS...............................................................................................................................i
ABSTRACT....................................................................................................................................................ii
CHAPTER ONE..............................................................................................................................................1
1. INTRODUCTION...................................................................................................................................1
1.1. Background of the study...................................................................................................................1
1.3. Statement of problem......................................................................................................................2
1.4. Objectives of the study.....................................................................................................................2
1.4.1 General objective........................................................................................................................2
1.4.2 Specific objectives.......................................................................................................................2
1.5. Research questions...........................................................................................................................3
1.6. Significance of the study...................................................................................................................3
1.7. Scope of the study............................................................................................................................3
CHAPTER TWO.............................................................................................................................................4
LITERATURE REVIEW....................................................................................................................................4
2.1 Definition of Credit............................................................................................................................4
2.2 The Need of Credit Risk Management...............................................................................................4
2.3. Principles of credit risk management...............................................................................................4
2.3.1. Establishing an Appropriate credit risk environment.................................................................5
2.3.2. Operating under a sound credit granting process......................................................................5
2.3.3 Containing an Appropriate Credit Administration, Measurement and Monitoring process.......6
2.3.4. Ensuring Adequate Controls over Credit Risk............................................................................6
2.3.5. The Role of Supervisor...............................................................................................................7
2.4 Credit Management Approach (CMA)...............................................................................................7
2.4.1. Minimal Risk Approach (MRA)...................................................................................................7
2.4.2 Price for Risk Approach (PRA).....................................................................................................7
2.4.3. Diversity of Risk Approach (DRA)...............................................................................................8
2.5. Credit Risk Management Cost..........................................................................................................8
2.6. Credit Risk Management Function....................................................................................................9
2.6.1. Credit Analysis and Appraisal.....................................................................................................9

iii
 2.6.2. Work out Procedure................................................................................................................10
2.6.3. Loan Monitoring and Review...................................................................................................10
2.7. Bank Credit Policy (BCP).................................................................................................................10
2.8 Types of Loans Provides by Banks....................................................................................................11
2.9. Summary and Knowledge gap........................................................................................................12
CHAPTER THREE........................................................................................................................................13
RESEARCH METHODOLOGY.......................................................................................................................13
3.1 The Research Design........................................................................................................................13
3.2 Source of data..................................................................................................................................13
3.3 Sample Techniques and Sample Size...............................................................................................13
3.4 Method of Data Collection...............................................................................................................13
3.5 Methods of data analysis and presentation.....................................................................................14
CHAPTER FOUR..........................................................................................................................................15
TIME AND BUDGET PLAN...........................................................................................................................15
4.1 Time Plan.........................................................................................................................................15
4.2 Budget Plan......................................................................................................................................16
Reference..................................................................................................................................................17

iv
 CHAPTER ONE
1. INTRODUCTION
1.1. Background of the study
Credit risk is the possibility of a loss resulting from a borrower's failure to repay a loan or meet
contractual obligations. Traditionally, it refers to the risk that a lender may not receive the owed
principal and interest, which results in an interruption of cash flows and increased costs for
collection. Excess cash flows may be written to provide additional cover for credit risk. When a
lender faces heightened credit risk, it can be mitigated via a higher coupon rate, which provides
for greater cash flows.

The word credit drives from the Latin word “credere” which shows the existence trust between
borrower and lender. Without the development of modern industrial community would have
been impossible. The major principle believed credit is buying now pay later the principle shows
that in the absence of cash on hand business entities in the economy can delay payment, until
fund is available, by making agreement with seller. Most of the time the counter made between
buyer and seller, borrower and the lender may become inefficient because of many reasons. The
existence of problems in a credit lends to the concept of credit risk management on the other
hand importance of credit for banks can be seen by its being one of the risk bank face.

Banks have managed four types of risk to earn profit for maximizing shareholders wealth. The
risks are credit risk, interest rate risk, liquidity and operation risk. . The credit risk management
process of a bank is believed to be good indicator of the quality of the bank portfolio. (Robert,
994)

safeguarding their business as well as the overall economy. To continue its contribution to the
economy development of the country and maximization of wealth shareholder, the bank they
need to assess its credit risk management (Harrick, 1990). Credit risk management is core to
achieve the desired objectives, which continue credit analysis and appraisal, credit risk
monitoring and review and work out procedure

1
1.3. Statement of problem
High risk can reduce earnings and capital, increase administration cost of the bank and induce
liquidity problems affecting cash flow that is why it is that management focus of its attention on
managing the loan. Credit risk is the main cause for the most bank failure. It can be raise when
the debtor will not be able to pay interest or repayment principal according to the terms specified
in credit management.

Credit risk management now a day considered as key activity for all banks. Many of the crises of
the 1990 would have been avoided if good risk management practices have been in place (Hull,
2007) Among the factor that contributed to the crisis is poor management or mismanagement
practice at banks and other financial institutions (.Dianu and lungu, 2008) Bass (2011) noted that
credit risk management is core to achieve the desired objectives which contain credit analysis
and appraisal, credit monitoring and review and work out procedure.

Most prior studies regarding credit risk management tried to examine the possible methods to
manage credit risk including the use of credit score rating, and the impact of borrower’s financial
positions on credit risk management and the impact of relation of borrower and lender on credit
risk management.

 Use business and industry analysis

 to understand companies
 , business models,and financing proposals.

Prepare a qualitative risk analysis for specific companies to use as the basis for financial
analysis, project analysis, and risk decisions. This paper will be mostly identify credit risk
management practice such as like: lack of screening and Risk identification, Risk assessment and
analysis, Risk monitoring, and Credit risk analysis (independent variables). Th regression will be
revealing that risk identification and risk assessment and analysis had significant positive impact
on Risk management practice while other

2
1.4. Objectives of the study
1.4.1 General objective
The general objective of the study is to assess credit risk management practice in a case of
development bank of Ethiopia Harar branch.
1.4.2 Specific objectives
1. To evaluate the major causes of credit risk.
2. To assess the methods used to reduce credit risk.
3. To identify problems and challenges in managing credit risk.
1.5. Research questions
For example, better investigation of the problem of the following research questions will be
answer by the researcher.
1. What are the major causes of credit risk?
2. What methods are used to reduce credit risk?
3. What are the problems and challenges faced in managing credit risk?
1.6. Significance of the study
An efficient credit risk management system is determined factor for success business
environment. Banks need to predict scientifically the exact level of risk they are going to assume
by entering in to contact in availing credit to the customer (Paul, 1991). After conducting this
research, it will give the following importance
 This study is use full for bringing in to light the strong and weak points in credit risk
management of development bank of Ethiopia.
 It will use as an additional reference for further researchers, who wishes to conduct a
research for further investigation.

1.7. Scope of the study

Assessing all about credit risk management practice is unmanageable and poor loan quality is not
the outcome of poor credit management alone. There are others that can contribute for
deterioration of quality loan, like natural factors. However, the study does not focus on such
issue and the scope is only limited to credit risk management practice on the development bank
of Ethiopia Harar branch.

3
 CHAPTER TWO
LITERATURE REVIEW
In this chapter, previous works that are related and relevant to proposed study are reviewed.
Howe ever, it seems appropriate to start with definition of credit risk.
2.1 Definition of Credit
Banks make money by providing services that their customer wants and by granting they credit.
There are some risks with this services and the most significant risk is credit risk. According to
Paul (1991), credit risk is the risk of loss due to the financial weakness of the bank customer.
Generally, the customer will not be able to provide fund to settle its transaction usually due to
bankruptcy or some others liquidity crisis. It also defines credited risk by other authors as
follows: It is the risk that borrower will be unable to meet its obligation. A bank reflect and aims
to profit from taking credit risk by charging higher interest margins on loans to those customers
that is consider present a higher risk (Brigham, 1991; pp.400).
2.2 The Need of Credit Risk Management
According to (http//www.erisk.com) bank oil the whiles of economy, they play a pivotal role in
mobilizing saving. In doing so, they face risks arising from credit, interest rate, liquidity,
exchange rate, transaction, compliance, strategic and reputation. Banks key challenge in
managing risk in understanding the interrelation of this risk factors they may be positively or
negatively correlated. The focus here no credit risk, which is the risk repayment, example, the
possibility that an obligor will fall to perform agreed. Banks lend to individual, corporation and
government who in turn contribute to growth, employment and better socio-economic
conditions. The goal of credit risk management is to maximize banks risk adjust rate of return by
maintaining. Credit risk exposure within acceptable parameter banks need to managing the credit
risk inherent in the entire portfolio as well as the risk in individual credit or transactions.

4
2.3. Principles of credit risk management
The goal of credit risk management should always be to maximize banks risk-adjusted rate of
return by maintain credit risk exposure with the entire portfolio as well as the risk in individual
credit or transactions. Bank should also consider the relationships between credit risk and other
risk. The effective management of credit risk is a critical component of comprehensive approach
to risk management and essential to a long term success of any banking business.
The Basel committee promotes sound practice for managing credit risk. In line with these
objectives, the committee has outlined principles of credit risk management. Which are mainly
applicable to the business of lending and it believes that banks should now have a keen
awareness of the need to identify measure, monitor and control credit risk as well as determine
that they hold adequate capital against this risk and that they are adequately compensated for risk
incurred.
2.3.1. Establishing an Appropriate credit risk environment
Principle 1: The board of directors should have responsibility for approving and periodically
(at least annually) reviewing the credit strategy and significant credit risk polices of the bank.
The strategy should reflect the banks tolerance for risk and level of profitability the bank expects
to achieve for incurring various credit risks.
Principle 2: Senior management should be responsibility for implementing the credit risk
strategy approved by the board of director and for developing policies and procedures for
identifying, measuring, monitoring and controlling credit risk. Such policies and procedures
should address credit risk in all of the banks activities and at both individual credit and portfolio
levels.
Principle 3: Banks should identify and manage credit risk inherent in all products and
activities. Bank should ensure that the risks of products and activities new to them subjected to
adequate risk management procedures and before being introduced or undertaken and approved
in advance by the body of directors its appropriate committee.
2.3.2. Operating under a sound credit granting process
Principle 4: banks must operate within sound well-defined credit granting criteria. These
criteria should include at a clear indication of the bank’s target market and a thorough
understanding of the borrower or counter party, as well as the purpose and structure of the credit
and its sources of repayment.

5
Principle 5: Banks should established over roll credit limits at the level of individuals
borrowers and counter parties and groups of connected counter parties that aggregate in a
comparable and meaning full manner different types of exposures, in the banking and trading
books on and off the balance sheet.
Principle 6: Banks should have a clearly established process for approving new credit as well as
amendment, renewable and refinancing of existing credit.
Principle 7: All extensions of credit must be made on an arm’s length basis .In particular, credits
to related companies and individual must be authorized on the exception basis, monitored with
particular care and other appropriate steps taken to control or mitigate the risks of non-arm’s
length lending.
2.3.3 Containing an Appropriate Credit Administration, Measurement and
Monitoring process
Principle 8: Banks should have in place a system for the ongoing administration of their
various credit bearing portfolios.
Principle 9: Banks must have in place a system for monitoring the condition of individual
credits including determining the adequacy of provision and resources.
Principle 10: Banks is encouraged to develop and utilize an internal risk rating system in
managing credit risk. The rating system should be consistent with the nature, size and complexity
of banks activities.
Principle 11: Banks must have information systems and analytical techniques that enable
management to measure the credit risk inherent in all on and off balance sheet activities. The
management information system should provide adequate information on the composition of the
credit portfolio, including identification of any concentrations of risk.
Principle 12: Banks must have in place a system for monitoring the overall composition and
quality of the credit portfolio.
Principle 13: Banks should take into consideration potential future changes in economic
conditions when assessing individual credits and their credit portfolio; and should assess their
credit exposures under stressful conditions.

6
2.3.4. Ensuring Adequate Controls over Credit Risk
Principle 14: Banks must establish a system of independent, ongoing assessment of the bank’s
credit risk management processes and the results of such reviews should be communicated
directly to the board of directors and senior management.
Principle 15: Banks must ensure that the credit granting function is being properly managed
and that credit exposures are within level consistent with prudential standers and internal limits.
Banks should establish and enforce internal controls and other practice to ensure that exceptions
to polices. Procedure and limits are reported in a timely manner to the appropriate level of
management for action.
Principle 16: Banks must have a system in place for early remedial action on deteriorating
credit, managing problem credit and similar workout situation.
2.3.5. The Role of Supervisor
Principle 17: Supervisors should require that banks have an effective system in place to
identify measure, monitor and control credit risk as part of an overall approach to risk
management. Supervisors should conduct an independent evaluation of banks strategic,
procedures and practice related to the granting of credit and the ongoing management of the
portfolio. Supervisors should consider setting prudential limit to bank exposures to single
borrowers or groups of connected counter parties.
2.4 Credit Management Approach (CMA)
According to Herrick (1990), banks manage their credit risks three approaches. They are
minimizing risk, price risk and the diversity risk approach. All approaches require an ability to
assess credit risks. The difference between the three approaches is the way assessments of risk
are used by banks.
2.4.1. Minimal Risk Approach (MRA)
The minimal risk approach to credit risk management attempted to separate loans, securities and
other assets into two groups. The first groups includes credit in which there is no reasonable
doubt that the asset will be reduced at face value, or in the case of equity investment, no
reasonable doubt that the investment will provide significant return over a period of year. The
other groups include all assessments of credit risk where it appears that a credit might not be
redeemed or inequity investment might not provide a good return. Many young bankers of the

7
time told themselves that they would do whatever was needed to prevent the experience from
happening again (Brigham 1991).
2.4.2 Price for Risk Approach (PRA)
Risks pricing recently has developed as an alternative approach to credit risk. The interest that
charged for a loan is greater. In the recent years, this approach also has a relied on the basic
method of credit analysis noted with minimal risk approach, but the care is the conclusions much
further. The risk pricing approach looks at all degrees of risk as normal part of the banking
business. In effect it views the assets all of the bank’s loans, securities and investment in various
shades of white gray and accepts all of them as legitimate, worthwhile assets.
Assets of greater credit risk involve greater risks losses, but these of greater credit involve
greater risk of loss, but these assets are expected price to earn to earn enough more interest
income to offset the credit risk, a profit for the bank. Assets of little credit risk involve lower risk
loss. These assets are expected to earn lower interest rates and also earn profit for bank. If risk
price is done properly, assets of all types of credit risk should show approximately the same
profit to a bank. The risk pricing approach reflects to trends in banking during the past decade
(Paul F1991).
2.4.3. Diversity of Risk Approach (DRA)
Credit risk management often diversifies a portfolio of loans, securities and investment at a
simple yet effective way of keeping problems of credit risk under control. However, the
approach is sometimes mistakenly used to justify taking greater individual credit risk or slimmer
risk price premium than other will be justified, which is mistaken. A major practices problem in
diversifying credit is determining what constitutes diversity. There are literally thousands of
ways of classifying assets. Yet to be effective, risk diversity requires relevant categories, and the
determination of relevant categories is not an easy matter (Herrick, 1990; PP: 135).
2.5. Credit Risk Management Cost
The starting point for efficient credit control of the cost of the credit and its potential effects is
profit and liquidity. Techniques for managing operating credit risk build on the board principles
are risk management that are already deeply ingrained in banking practices. There are three basic
ways to manage credit risk and carry costs to consider. They are:

8
1. Exposure reduction: This credit exposure could be eliminated by requiring the customer to
provide collateral or guarantees. Banks have their own specialist lenders and assessors who have
the skill and expensive for banks to implement, they often result in higher customer costs.
2. Risks control: Program to control risk on the other hand can involve a change in operation
and are often expensive to implement. This is designed to monitor the actual level of risk as it
changes and to refer to transaction to the proper credit authority for approval before the exposure
is created.
3. Loss funding: Provisions must also be made for any losses that do occur. Although banks
insure loans loses by deducting a provision from earning to create, must do not use this
mechanism to insure against loses from operating services. Ideally, reserves should be built and
capital allocated to operating services in proportion the risk they inure. The determination the
level of credit risk to be funded, the following have to be considered: how much risk remains
after implementing exposure reduction and risk control procedures, the operation dependability
of the efforts and an analysis of the likelihood of loss from the remaining exposure (Paul,
PP.132).
Based to Churchill and Dancoster (2001), credit risk management is divided in to two faces.
i. Prior to issuing a loan, a lender reduces credit risk through controls that potential
for delinquency or loss commonly known as preventive steps before issuing a loan
and it includes: loan terms, loan amounts reflecting the clients repayment capacity,
legibility criteria for a loan request, repayment frequency, collateral, ability and
willingness of the borrowers to repay a loan and check credit history with suppliers
and other credit organizations.
ii. Once the loan is issued a lenders risk management expands controls that reduce
actual losses, commonly known as controls after extending loans.
2.6. Credit Risk Management Function
According to Bass (1998) credit risk management is core to achieve the desired objectives.
Credit risk management contains three basic functions and these are: credit analysis and
appraisal, credit monitoring and review and work out procedure.
2.6.1. Credit Analysis and Appraisal
Having compiled a basic file of information and investigated avenues suggested by
inconsistencies, derogatory comments, and favorable opinions, the analysts assesses the

9
willingness and ability of the applicant to repay. Lack of these describes an area of the persons or
firms credit worthiness.
1. Character: The quality of design to repay debts when due is tanked above all other
considerations. Of course, honesty is necessity, but character implies integrity and
empathy for the lenders position as well.
2. Capacity: Capacity is the ability to repay debts as scheduled. For households, the
employment of the working members provides most of the income which is spent for
consumer expendables and debt repayment, marketing and financial peculiarities of the
firm and its industry.
3. Capital: This fact of the applicants refers to his/her financial strength that is the ability
to raise funds from the liquidation of assets or other business. As a last resort the
borrower’s capital may repay the debt, but such actions generally mean the termination
of the borrower’s business sand, of course, the relationship with the lending institution.
4. Conditions: Borrowers may be subject to unfavorable economic conditions beyond
their control. Repayment depends not only upon character, capacity. And collateral, but
those factors over which borrower exercises little or no control.
5. Collateral: It is an asset, normally movable property pledged against the performance
of an obligation. Bank can sell the collateral if the borrower defaults, while collateral
(Robabruce, 1997; PP.808).
2.6.2. Work out Procedure
Works out procedure are important aspects of credit risk management. If timely action is not
taken to address problem loans, opportunities to collect poor quality asset will soon vanish. Work
out procedure involves the following process identification of problem loans, reviewing and
analyzing problem loans, reviewing loan history and documentation and meets the customer and
openly discuss problem. The first element of work out procedure is to ensure collection. In the
absence of ensuring collection with in short period of time, arranging new agreements for the
borrower if it help to get of problem is another alternative (Bass1998).
2.6.3. Loan Monitoring and Review
According bass, proper credit risk management involves due credit analysis, having the
preposition approved, cash disbursed and ultimately follow up the loan is order to o have the
extended credit repaid back good credit could become problem loans unless a continuous follow

10
up is made which enables to detect signs that reveal difficulties The objective of credit
monitoring and review, among other includes: ensuring the loan are direct to the intended
purpose, ensuring that loan covenants are complied with, following up borrowers business
condition, maintaining good quality of the loan, and identifying emerging problems.
2.7. Bank Credit Policy (BCP)
Credit policy refers to as standing decision made in advance to cover a prescribed or set
condition. It provides guide lines weathers to extend credit to customers and how much credit to
extend (Eleni, 2008). A bank was adopted either liberal or tight credit policy. Liberal credit
policy involves extending credit to more risky class whose credit worthiness is not known
exactly. This policy increase profit by increasing the level of loans extended to customers but
incurs higher risks of bad debit losses and faces the problem of liquidity (Eleni, 2008).
Credit policy involves extending credit to those who have proven credit worthiness, this policy is
very selective in extending credit and results as low profit but it have minimum cost and chances
of bad debit losses. Thus, managers should develop credit policies which make tradeoff between
risks and return (Mulugeta, 2010). Loan policy communicates to employee who work in loan
department, what procedures they must follow and what their responsibility are. Any exception
to the banks written loan policy should be fully do commented and the reason why a variance
from the loan policy was permitted should be listed(Belay, 2009).
The credit policy would give the influence of the bank and its management specific guidelines in
making loan decisions and in shaping the banks over all loan portfolios. Because of this fact the
actual composition of banks portfolio should be in line with the credit policy. If this is not the
case either the bank should review the policy or its management strongly enforces it. To meet the
regulatory bodies and standards and also to operate profitability, banks must be establishing a
written credit policy.
The quality of bank credit portfolio and soundness of its lending policies are the area of federal
and state bank examiners look at most closely when examining a bank. Basis of credit policy is
essential that a newly appointed credit manager be given clear guidance on company policy
towards guaranteeing of credit. As belay cited, generally speaking the bigger the firm bank the
greater the need for some form of written statement, if only to define the credit managers
authority and terms of reference. (Belay, 2009).

11
2.8 Types of Loans Provides by Banks
We have seen that the most important task of a bank if providing credit to various businesses in
the economy and banks management is highly commits to the management of this import asset.
The advance of loan to the difference borrowers can take place a variety of forms. Traditional
loans to business were single payment loans, but today business installment loan have become
more and more important in the banking industry (Mahder, 2008).
Banks engaged now in wide variety short term and long term lending activities and they changed
their policy and strategies to make intermediate term loans, with maturity from 1 to 5 years, and
long term loans with maturity in excess of 5 years. The variety of loans that a bank makes to the
society can be different from country to country and from bank to bank. Banks are even required
to report their loan portfolio to the regulating bodies classifying the loan they provide. For
example, loans in bank can be divided in to seven group categories delineated their purpose
(Eleni, 2008).
1. Real estate loans: which are secured by real property loans, buildings, and land other
structures include short term loans to constructed and land, home apartment, Commercial
structures and foreign properties.
2. Financial institution properties, including credit to banks insurance companies, financial
companies and other financial institutions.
3. Agricultural loan: the loan which extend to farm and ranch operations to assist in planning and
harvesting crop and to support the feeding and care of livestock.
4. Commercial and individual loan: guaranteed to business to cover such expenses as purchasing
inventories, paying taxes and meeting pay rolls.
5. Loans individual: includes credit to finance, the purchase of automobiles, mobile, phone
appliances and other retail goods to repair and modernize home, cover cost of medical care and
other personal expenses either expensed directly to individual or indirectly through retail dealers.
6. Miscellaneous loan: This includes all those not classified under above the security loan.
7. Lease financing receivable: where the bank bays equipment or vehicles and lease them to its
customers.
2.9. Summary and Knowledge gap
Most Studies on risk management practice of development banks mostly have been conceptual in
nature, for exampleAn indicative pathway towards managing nature-related risks for example:-

12
1. COMMIT TO UNDERTAKING AN INITIAL NATURE-RELATED
STRESS TEST OF THEIR BALANCE SHEETS
a. Use existing data sources to identify regions with high nature risk and sectors with high nature
dependency
b. Estimate potential losses/impairments building from the methodology presented in this report
c. Identify plan to improve sophistication of approach over time including data collection
2. PROGRESS DISCUSSION AT BOARD-LEVELAND WITH SHAREHOLDER
GOVERNMENTS
a. Bring discussion of nature and nature-related risk to board and shareholder fora - focus on
nature to match focus on climate

b. Update the strategy, investment policy and fundingobjectives to account for outcome of board
discussions on nature
3. ENGAGE WITH PEERS AND INDUSTRY GROUPS
a. Support the Taskforce for Nature-related Financial Disclosures (TNFD) in the development of
its framework
b. Participate in the International Development Finance Club (IDFC) working group on
biodiversity
c. Attend the Finance in Common summit and help promote collaboration on nature-related risks
4. STRENGTHEN ENVIRONMENTAL SAFEGUARDS
a. Update safeguards to include biodiversity
and ecosystem services where required
b. Publish environmental impact assessments if not done so already
often drawing the theoretical link between good risk management practices and improved bank
performance. There are limited studies providing empirical evidence to the risk management
practices of development banks of Ethiopia Harar Brach. However, as per the researcher’s
knowledge no study is conducted to see credit risk management practice of development banks
in association with some variables like: minimal risk approach, price for risk approach, diversity
of risk approach, bank credit policy and understanding credit management approach. Hence, this
study aims to fill the gap in the literature by focusing on the risk management practices of the
development bank of Ethiopia Harar branch.

13
14
 CHAPTER THREE
RESEARCH METHODOLOGY
3.1 The Research Design
The researcher will be adopt descriptive research design. Descriptive methods attempt to define a
subject or describe it by creating group problems, people or events profile to assess credit risk
management practice in development bank of Ethiopia Harar branch The researcher used
quantitative in order to generate the advantage of both approaches like to adders to different
objectives of the study, which cannot be achieved by a single method and to enable one approach
to inform another approach. The combinations of both quantitative and qualitative methods are to
gain a better understanding of the phenomena under the study. (Ker char, 2010)
3.2 Source of data
In order to get sufficient and relevant information for the study, the researcher used only primary
data because there is no sufficient and relevant information of secondary data in the office. The
primary data source was collected from the employees of the institution on the situation of the
credit risk management practice.
3.3 Sample Techniques and Sample Size
The researcher used census sampling technique. The reason why the researcher used it, in case of
the small size of the employees and their awareness of respondents to get relevant information
about fixed asset management. Accordingly the sample sizes of the study 15 employees were
worked Development bank of Ethiopia Harar branch. It is possible to address the whole
population, so that, for this study the researcher used census method. the researcher take the
population as it is because, they are small in number.
3.4 Method of Data Collection
The researcher collected primary data through questionnaire and structured interview from
employees and manager of development Bank of Ethiopia Harar Branch respectively. The
questionnaires were open- ended and close-ended. Closed-ended (fixed-alternative)
questionnaire items are convenient for analysis and coding, and easy for respondents to answer
within a short period of time. With regard to open-ended questionnaires, it helped to get relevant
information from respondent.

15
3.5 Methods of data analysis and presentation
After collecting the data from primary and secondary source, the data analysis will be done by
using qualitative technique. The data presentation will be presented by using table percentage.

16
 CHAPTER FOUR

TIME AND BUDGET PLAN

4.1 Time Plan
N Activity Months
o  Dec Jan Feb Mar Apr May June
O

1 Title selection X
2 preparation of research proposal X
3 Recommendation of comments X
to first draft of the proposal
4 Typing of final proposal X
5 Submission of proposal X
6 Data collection X
7 Data analysis X
8 Submission of first draft of X
research report comments
9 Typing of final report X
10 Submission of final research X
11 Presentation X

17
4.2 Budget Plan
Item Quantity Unit cost Total cost
(Birr)
Transportation 50
Typist 130
Printing 45 1 Birr 45
Paper 2 reams 118 236
Pen 8 5.00 40
Flash 1 180 180
Binding 5 15 75
Miscellaneous expense 180
Total 936

18
Reference
David Shimko, Credit Risk Models and Management,2nd Ed Canda
2004.
Desaleng Ayalew (2014) Risk Management in Ethiopian private Banks,unpublished

Dean,Cair and Rober Kosman (2003) Credit Risk Scoring, www.modelrs.ac.sir

George M.Gupton.Christpher.C, finger (2007) The risk metrics growth .J.P.Morgan 2007

George S. Oldfied (1997 ) the Place of Risk Management in Financial institutionsUniversity

ofPennsylvanian

Ghauri, Prevez & Gronhagu, Kjell (2010 ). Research Methods in BusinessStudies,4

th Edition Pearson Education Limited Essex, England.

Jackson, Nickel and Perradin (1999) Credit Risk Modeling, Bank of England.

John hull ,Izzay Nekien (2004) Merton Model. www.rotamn.utranto.

Joel Besis (2008) Risk Management in Banking John wiley & sons

Kithnijc.A.M.(2010 ).Credit Risk Management and Profitability of Commercial

Banks in Kenya School of business, University of Nairobi, Nairobi

Krejjice & morgan, Determining Sample Size for Research Activities, Educational

and Psychological Measurements ,http//research advisor.com/

Machiraju, H.R, (2003), Modern Commercial Banking,Vikas 18.Publishing Housecarger learning

Yohanes Aregaw credit risk management case study bank of Absinia

Ataklet Hailu (2015) Credit Risk Management Practice of Ethiopian ComercialBanks

Abdullahi Sani Rufai (2013) Efficiency of Credit Risk Management on the
Performance of Banks in Nigeria A Study of Union Bank PLC (2005-2010).
Brigham (1991).Banks’ lending activities 4th ed. PWS KENT publishes company.

Bass (1998), credit risk management.5th

19
Belay, “Assessment on credit risk management in development bank of Ethiopia”, 2009, P33.
Churchill and dancoster (2001), Risk management practice 13thed, the MC GRAW-HILL
Company
Elen Abera, “credit risk management process”, Ethiopia, 2008, P66
Herrick (1990), risk, management in micro finance institution, 4 thed, MC GRAW-HILL,
Company
Mahder Tesfay, “Analysis on loan provision’’, in commercial bank of Ethiopia”, 2007, P.77.
Mulugeta Abate, “Assessment of loan provision and cause for default”, Ethiopia, 2010, P.55.
Paul F, (1991) credit risk management in banks, 11thed, south western in ITP Company.
Robert J. (1994), Risk management practice 6th vikas publishing house PVT, LTD
http//www.Erisk.com. 2016.
https://www.afd.fr/en/ressources/identifying-and-classify-
ing-public-development-banks-and-development-finance-institutions
https://www.ft.com/content/1dd92502-e95b-4c21-be1c-c18a598acf1a
https://www.f4b-initiative.net/post/the-climate-nature-nexus-implications-for-the-financial-
sector
https://investors-corner.bnpparibas-am.com/investing/an-intro-
duction-to-the-sustainable-finance-disclosure-regulation/

20