Assessing the Credit Risk Rate in Dealing with Small and Medium Enterprises: The Case of National Investment Bank, Ghana

Banks contribute immensely to the growth of every economy and their main business activity is lending. However, when loans granted to borrowers go bad, it tends to have serious repercussions on the financial health of the banks. This study sought to assess the credit risk rate in dealing to Small and Medium Enterprises (SME's) in Ghana. The study also looked at the trend of bad loans during the five-year period under review (2005 - 2009), and the factors that account for bad loans. Primary and Secondary data were used in the study. The results were based on the analysis of interview with 15 Credit Officers, 50 SME managers, and 5 managers of the National Investment Bank of Ghana (NIB). Two branches of NIB that is the Obuasi and Dunkwa-on-Offin branches were selected for the study. The findings revealed that, the bank recorded huge amounts of bad loans during the period under consideration which negatively impacted on the financial performance of the bank through reduction in lending funds and profits. Several factors were contributed to the bad loans and the main ones include poor credit appraisal and ineffective monitoring. Finally, to reduce the credit risk rate of the bank, some measures have been recommended to management and policy makers of the bank. These are effective loan monitoring by credit officers, regular training programmes for loan officers, the use of credit bureaus and adequate collateral assessment prior to granting credit.