What is the Current State of Credit Risk Management in Non-State Sri Lankan (SL) Banks, and how ready are they for forthcoming regulatory changers?

By

Acknowledgement

I am thankful to the people who have been helpful to me throughout for completing my research study and without these people by my side it would have been impossible for me to complete this dissertation. Particularly, I am grateful to my friends, family and facilitator for their helpful and extensive comments on the earlier drafts that were submitted. I am also thankful to the authors who preceded me and shared my interests. The works of other authors have provided me with a bunch of information to learn and build from and they also served as examples to imitate.

Declaration

I [type your full first names & surname here], declare that the following dissertation/thesis and its entire content has been an individual, unaided effort and has not been submitted or published before. Furthermore, it reflects my opinion and take on the topic and is does not represent the opinion of the University.

Signature:

Dated:

Abstract

Purpose - The purpose of this research study was explore the current state of credit risk management in non-state Sri Lankan (SL) banks, and how ready are they for forthcoming regulatory changes.

Literature review - Relevant theoretical frameworks pertaining to Credit risk management have been analysed and presented.

Research Methodology -This research study has adopted a quantitative and a qualitative research method. Interviews have been conducted with the decision makers of the non state banks in the Sri Lankan banking industry were conducted. Furthermore, the calculations for tier 1 and tier 2 capitals have been incorporated in this research study. A survey has also been conducted with the officials of the non state banks in the banking industry of Sri Lanka.

Findings - The interview analysis showed that the major responsibility in order to understand the risks that the banks face and to make sure that these risks are controlled in an appropriate manner and are in the bank's risk parameters, for example, risk appetite of the bank. The concept of good corporate governance has been accepted all around the world as the management of the banks seems to understand the products of new banking and the banks' businesses. If there is no understanding the risks that are associated to the new products, the management must provide their assent to the initiation of these products. The board of directors are responsible for the setting the parameters that are required for taking risks and are beyond the business of banking, which is not permitted. Reliable and timely information is based on the same criteria on which good management of risk is based. Information seems to play a major role and it is an important part. If the banks do not have the relevant information regarding the sector, the credit decisions will fail sooner or later.

The results of the questionnaire showed that the management of credit risk is of utmost importance to the non-state banks in the Sri Lankan banking ...