The purpose of this paper is to develop a conceptual model to be used further in understanding credit risk management (CRM) system of commercial banks (CBs) in an economy…
The purpose of this paper is to develop a conceptual model to be used further in understanding credit risk management (CRM) system of commercial banks (CBs) in an economy with less developed financial sector.
The paper reviews existing literature that consists mostly evidence from developed countries. A study model is proposed with amendment to fit Tanzania's environment. This is achieved through the use of both secondary (various relevant documents) and primary (interviews) information from a CB and key management officials dealing with credit management. The selected CB is active in lending, has both foreign and local characteristics in its operations and has been in operation for a relatively longer period.
The main finding of this paper is that the components of CRM system differ in CBs operating in a less developed economy from those in a developed economy. This implies that the environment within which the bank operates is an important consideration for a CRM system to be successful.
Tanzania, a less developed economy, provides an excellent case for studying how CBs operating in economies with less developed financial sector manage their credit risk. The paper identifies issues to be studied further in order to establish a CRM system by CBs operating in Tanzania.