The Effect of Credit Risk Management on Financial Institutions in Sierra Leone

Abstract

: The aim of study is to examine the effect of credit risk management on the performance of financial institutions in Sierra Leone: A case study of Sierra Leone commercial bank Makeni branch. The study specific objectives were; examine the factors influencing credit performance, effects of credit risk management on the performance and the ways of credit risk management on the performance of the Sierra Leone Commercial Bank (SL) Limited. In carrying out the research study, the researcher used qualitative method. A descriptive research designed is used in conducting the findings. Purposive sampling technique is used in order to obtain data from the respondents. The target population of the study is 20 while the sample size is 6 respondents. The findings revealed that (67%) of respondents agreed that internal factors greatly influence loan performance while (33%) of participants agreed that external factors are those that influence the performance of Sierra Leone commercial Bank, Makeni Branch. The research implies that the following internal factors like capital adequacy, credit risk, management efficiency, liquidity management and poor location of the institution have great impact in terms of influencing the daily activities of the institution. The institution has absolute control over such factors either in decision making process or any other action they may wish to take over in the institution while the following external factors like inflation rate, interest rate, loan size, loan policies and savings rate that affects the operation of the institution. The reason being external factors are those factors which the institution has little or no control over of in terms of it operational activities. The research also revealed the effect of credit risk like reducing operation costs, causes of economic down turn, it affect changes in interest rate and it reduces profit and loss account at Sierra Leone commercial Bank Makeni Branch. The study recommends that Sierra Leone commercial bank Makeni branch should establish a department of risk management that will enable them to minimize or control their credit risks and also should make diversification in the credit facilities in order to reduce the credit risk.