An evaluation of risk management practices on credit quality in banking: a case study of Accord Microfinance Bank
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Background of the Study
Risk management practices are fundamental to maintaining credit quality and overall financial health in the banking sector. Accord Microfinance Bank has adopted a comprehensive risk management framework that includes rigorous credit assessment procedures, stress testing, and continuous monitoring to ensure that its loan portfolio remains healthy (Afolabi, 2023). In an environment marked by economic volatility and high credit risk, these practices are essential for mitigating losses and ensuring the sustainability of lending operations. The bank’s strategies, which have evolved between 2023 and 2025, emphasize both technological innovation and robust human oversight to detect and manage potential defaults.
Effective risk management not only protects the bank’s assets but also enhances customer confidence by ensuring that loans are issued to creditworthy borrowers. Empirical studies suggest that a strong correlation exists between sound risk management and improved credit quality, resulting in lower non-performing loan ratios and higher profitability (Ibrahim, 2024). However, challenges remain in aligning risk management practices with dynamic market conditions and borrower behavior. This study will examine the impact of Accord Microfinance Bank’s risk management practices on credit quality by analyzing loan performance data, internal audit reports, and risk assessment methodologies. The research aims to identify gaps in current practices and propose enhancements to further improve credit quality and minimize credit risk.
Statement of the Problem
Despite implementing advanced risk management practices, Accord Microfinance Bank encounters persistent challenges in maintaining optimal credit quality. Fluctuations in borrower repayment behavior and unexpected economic downturns occasionally result in elevated levels of non-performing loans (Chinwe, 2023). Additionally, the integration of digital risk assessment tools with traditional credit evaluation methods has sometimes led to inconsistencies in decision-making. These challenges not only threaten the bank’s profitability but also undermine customer trust and investor confidence. The disconnect between the bank’s risk management strategies and real-world credit outcomes indicates that existing practices may require further refinement to adapt to changing market conditions. This study seeks to examine these issues by identifying the root causes of credit quality deterioration and evaluating the effectiveness of current risk management practices. The goal is to propose strategic improvements that can enhance credit risk mitigation and support overall financial stability.
Objectives of the Study
– To evaluate the impact of current risk management practices on credit quality at Accord Microfinance Bank.
– To identify challenges in the integration of digital and traditional credit evaluation methods.
– To recommend enhancements to improve credit quality and reduce non-performing loans.
Research Questions
– How do risk management practices affect credit quality at Accord Microfinance Bank?
– What challenges hinder effective credit risk mitigation?
– What strategies can enhance risk management and improve credit outcomes?
Research Hypotheses
– H₁: Effective risk management practices are positively correlated with improved credit quality.
– H₂: Inadequate integration of risk management tools negatively impacts credit performance.
– H₃: Regular updates to risk assessment models lead to lower non-performing loan ratios.
Scope and Limitations of the Study
This study focuses on Accord Microfinance Bank’s credit portfolio and risk management processes. Data will be collected from internal loan performance records, risk management reports, and interviews with risk officers. Limitations include external economic influences and potential limitations in data availability.
Definitions of Terms
• Risk Management Practices: Procedures and tools implemented to identify, assess, and mitigate credit risk.
• Credit Quality: The overall health and performance of a bank’s loan portfolio.
• Non-Performing Loans: Loans in which the borrower fails to meet scheduled repayment obligations.
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