An assessment of credit risk mitigation measures in business banking: A case study of Keystone Bank, Abuja
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Background of the Study
Credit risk mitigation is critical to sustaining the financial stability of business banking institutions. Keystone Bank in Abuja has implemented various risk mitigation measures to manage and reduce the likelihood of default by corporate borrowers. These measures include robust credit appraisal processes, diversified lending portfolios, and the use of collateral and guarantees to secure loans (Okechukwu, 2023). The bank’s risk management framework integrates both quantitative models and qualitative assessments to evaluate borrower creditworthiness and market conditions. By employing advanced risk analytics and automated monitoring systems, Keystone Bank seeks to identify early warning signals and take proactive measures to mitigate potential losses (Chukwu, 2024).
The adoption of these credit risk mitigation strategies is essential in a volatile economic environment where fluctuations in interest rates and market conditions can significantly impact borrower repayment capacity. Keystone Bank has also focused on training its credit officers to enhance their analytical skills and improve decision-making processes. This dual approach—combining technology with human expertise—has contributed to a reduction in non-performing loans and improved portfolio quality. Despite these advancements, challenges remain in adapting risk models to rapidly changing market dynamics and evolving regulatory requirements (Ijeoma, 2025). This study aims to assess the effectiveness of credit risk mitigation measures in Keystone Bank’s business banking division, offering insights into the strengths and weaknesses of current practices and suggesting improvements for enhanced risk management.
Statement of the Problem
While credit risk mitigation measures have been instrumental in reducing non-performing loans, Keystone Bank continues to face challenges in managing credit risk effectively. One significant problem is the limited adaptability of traditional risk assessment models in capturing emerging market risks, leading to potential underestimation of borrower default probabilities (Okechukwu, 2023). Additionally, integration issues between automated risk systems and manual oversight processes can create inconsistencies in risk evaluation and decision-making. The high cost of continuous system upgrades and the need for ongoing training further strain the bank’s resources (Chukwu, 2024). Regulatory changes and economic uncertainties exacerbate these challenges, making it difficult to maintain a robust risk mitigation framework. Consequently, there is a need to examine the effectiveness of existing credit risk measures and identify critical gaps that may expose the bank to unforeseen losses (Ijeoma, 2025). This study will analyze current credit risk mitigation strategies and propose recommendations to enhance the resilience of credit portfolios in the business banking sector.
Objectives of the Study
- To assess the current credit risk mitigation measures at Keystone Bank.
- To identify gaps and challenges in the existing risk management framework.
- To propose strategies to enhance credit risk mitigation in business banking.
Research Questions
- What credit risk mitigation measures are currently employed by Keystone Bank?
- What challenges are encountered in the implementation of these measures?
- How can credit risk mitigation strategies be improved to reduce default rates?
Research Hypotheses
- H₁: Advanced risk analytics significantly reduce credit default rates.
- H₂: Integration issues between automated and manual processes negatively affect risk mitigation.
- H₃: Continuous staff training enhances the effectiveness of credit risk management measures.
Scope and Limitations of the Study
The study focuses on Keystone Bank’s business banking division in Abuja, reviewing credit risk mitigation measures over recent fiscal cycles. Limitations include access to proprietary risk data and the unpredictability of economic conditions.
Definitions of Terms
- Credit Risk Mitigation: Strategies to reduce the risk of loss from borrower defaults.
- Business Banking: Financial services provided to corporate and commercial clients.
- Non-performing Loans: Loans on which borrowers are not making scheduled repayments.
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