ASSESSING CREDIT MANAGEMENT POLICIES OF BANKS. (A STUDY OF MERCHANT BANK GHANA LIMITED, KOFORIDUA) CHAPTER ONE

1.0 BACKGROUND TO THE STUDY Credit does not necessarily require money. The credit concept can be applied in barter economies as well, based on the direct exchange of goods and services (Ingham 2004 p.12-19). Banks' activities can be divided into retail banking, dealing directly with individuals and small businesses; business banking, providing services to mid-market business; corporate banking, directed at large business entities; private banking, providing wealth management services to high net worth individuals and families; and investment banking, relating to activities on the financial markets.
A bank can generate revenue in a variety of different ways including interest, transaction fees and financial advice. The main method is via charging interest on the capital it lends out to customers (George 2000)
Loans are the major asset for most banks. They earn more interest than banks have to pay on deposits, and, thus, are a major source of revenue for a bank. Often banks will sell the loans, such as mortgages, credit card and auto loan receivables, to be securitized into asset-backed securities, which can be sold to investors. This allows banks to make more loans while also earning origination fees and/or servicing fees on the securitized loans. (Spaulding 2005)
Banks face a number of risks in order to conduct their business, and how well these risks are managed and understood is a key driver behind profitability, and how much capital a bank is required to hold. Some of the main risks faced by banks include, credit risk, liquidity risk, market risk operational risk and reputational risk.
The goal of credit risk management is to maximise a bank's risk-adjusted rate of return by maintaining credit risk exposure