Assessing the Effectiveness of Credit Risk Management Processes and its Impact on Financial Performance of Credit Unions in Ghana

Credit Unions in Ghana have made greater contributions to enhancing people access to loans. It has been argued that exposure of Credit Unions to credit risk has caused huge loan losses and in turn led to collapse of many of the institutions. This study sought to assess the risk management skills and approached of the St. Paul’s Cooperative Credit Union and the De-Pores Credit Union. The study also sought to examine the CAMEL rating performance of the Credit Unions and the effects of NPL and loan portfolio on profitability of the institutions. Data was collected from the Loan Officers, Branch Managers and Accountants of the Credit Unions on measures in place to reduce credit risks. Data was also obtained from the financial statements of the Credit Unions from 2007 to 2016. The study revealed that management of the Credit Unions conduct pre-assessment, mid-term assessment and post assessment before loans are granted to customers which have helped to reduce credit risks. The study found that the Credit Unions do not have the capacity to relate or use its accumulated capital against credit risks. Also, the study indicated that the Credit Unions had inadequate capital to back its operations. The study found that the assets of the Credit Unions are not effectively used to generate more income to improve performance. The Credit Unions experienced lower loan growth rate. The Credit Unions do not have enough liquidity to cover any unexpected fund obligations. The regression analysis showed significant effects of NPL and Loan Portfolio on profitability of the Credit Unions. The study recommends that management of the Credit Union should put measures in place to grant more quality loans, reduce NPL and revitalize it CAR position in order to make credit unions vibrant and solvent