The Effectiveness of Credit Risk Mitigation Strategies Adopted by Ghanaian Commercial Banks in Agricultural Finance
Abstract
:1. Introduction and Background
2. Literature Review
2.1. Conceptualization of Credit Risk in the Agricultural Lending Context
2.2. Review of Empirical Studies on CRM Strategies
3. Methodology
3.1. Research Approach and Sample Selection
3.2. Data Analysis Method
4. Results and Discussion
4.1. Interview Results of CRM Strategies
‘…So, if the government’s intervention in agriculture is high, it brings the number of challenges down’.
‘…Commercial banks should either have technical units or have an outsourced technical unit or standby that assists farmers who take facilities from them’.
‘…look at the key players within a certain value chain so that if you are financing rice growers, then you look at the chain in totality. …the bank, now links the farmers to buyers. So that we don’t have a situation where you lend and the project is successful but because of lack of marketing the farmer is unable to pay back the loans.’
4.2. Analysis of Quantitative Results on Credit Risk Mitigation Strategies
4.3. Discussion of the Results
5. Conclusions
Author Contributions
Funding
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Conflicts of Interest
Abbreviations
References
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Component | Initial Eigenvalues | Extraction Sums of Squared Loadings | Rotation Sums of Squared Loadings | ||||||
---|---|---|---|---|---|---|---|---|---|
Total | % of Variance | Cumulative % | Total | % of Variance | Cumulative % | Total | % of Variance | Cumulative % | |
1 | 5.655 | 33.264 | 33.264 | 5.655 | 33.264 | 33.264 | 4.379 | 25.759 | 25.759 |
2 | 2.886 | 16.975 | 50.239 | 2.886 | 16.975 | 50.239 | 3.042 | 17.893 | 43.652 |
3 | 1.106 | 6.503 | 56.743 | 1.106 | 6.503 | 56.743 | 2.225 | 13.091 | 56.743 |
4 | 0.829 | 4.875 | 61.617 | ||||||
5 | 0.752 | 4.421 | 66.038 | ||||||
6 | 0.733 | 4.310 | 70.349 | ||||||
7 | 0.643 | 3.780 | 74.129 | ||||||
8 | 0.612 | 3.600 | 77.729 | ||||||
9 | 0.591 | 3.474 | 81.203 | ||||||
10 | 0.549 | 3.232 | 84.435 | ||||||
11 | 0.494 | 2.905 | 87.340 | ||||||
12 | 0.407 | 2.395 | 89.735 | ||||||
13 | 0.395 | 2.325 | 92.060 | ||||||
14 | 0.383 | 2.253 | 94.313 | ||||||
15 | 0.359 | 2.114 | 96.427 | ||||||
16 | 0.306 | 1.802 | 98.229 | ||||||
17 | 0.301 | 1.771 | 100.000 |
Component | 1 | 2 | 3 |
---|---|---|---|
1 | 0.840 | −0.240 | 0.486 |
2 | 0.184 | 0.970 | 0.161 |
3 | 0.510 | 0.046 | −0.859 |
Factors | Loadings |
---|---|
Component 1: (Loan review and Documentation) | |
(Eigenvalues: 5.655; Variance: 33.26%; Cronbach’s alpha: 0.88) | |
Credit officers regularly identify loan distress signals | 0.711 |
The loan granting process is regularly reviewed | 0.748 |
There is a regular review of loan portfolio quality | 0.779 |
The credit administration process is regularly reviewed | 0.697 |
Borrowers’ credit report is regularly reviewed | 0.747 |
Borrowers’ performance profile is regularly reviewed | 0.714 |
All credit-related transactions are properly documented | 0.586 |
The overall quality of the loan portfolio is assessed on a timely basis | 0.628 |
Component 2: (Credit Skills Review and Monitoring) | |
(Eigenvalues: 2.886; Variance: 16.98%; Cronbach’s alpha: 0.80) | |
Employees’ credit skills are regularly reviewed | 0.725 |
Collateralized transactions are regularly monitored | 0.620 |
Credit officers are regularly trained | 0.773 |
Risk management practices are regularly reviewed | 0.781 |
The flow of the borrowers’ business is regularly monitored | 0.720 |
Loans are guaranteed by the Government or credit associations | 0.578 |
Component 3: (Credit Department Checks) | |
(Eigenvalues: 1.106; Variance: 6.50%; Cronbach’s alpha: 0.75) | |
Credit department checks that loans are repaid on time | 0.726 |
The credit department regularly identifies loans with potential credit weaknesses that can cause repayment problems | 0.766 |
Credit risk management guidelines are regularly communicated | 0.653 |
Kaiser–Meyer–Olkin Measure of Sampling Adequacy | 0.892 |
Bartlett’s Test of Sphericity (p-value) | 2133.55 (0.048) |
Percentage of the total variance explained | 56.74% |
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Nyebar, A.; Obalade, A.A.; Muzindutsi, P.-F. The Effectiveness of Credit Risk Mitigation Strategies Adopted by Ghanaian Commercial Banks in Agricultural Finance. J. Risk Financial Manag. 2024, 17, 385. https://doi.org/10.3390/jrfm17090385
Nyebar A, Obalade AA, Muzindutsi P-F. The Effectiveness of Credit Risk Mitigation Strategies Adopted by Ghanaian Commercial Banks in Agricultural Finance. Journal of Risk and Financial Management. 2024; 17(9):385. https://doi.org/10.3390/jrfm17090385
Chicago/Turabian StyleNyebar, Abraham, Adefemi A. Obalade, and Paul-Francois Muzindutsi. 2024. "The Effectiveness of Credit Risk Mitigation Strategies Adopted by Ghanaian Commercial Banks in Agricultural Finance" Journal of Risk and Financial Management 17, no. 9: 385. https://doi.org/10.3390/jrfm17090385