The Credit Risk Management Practices of Rural Banks in Isabela, Philippines

Abstract

There is still considerable unmet demand for credit in rural banking. The success of its system, however, relies considerably on its ability to provide a good credit portfolio. To protect the rural banking industry from failure, the credit provider should be accompanied by appropriate and attractive credit policies and procedures that enhance the performance of credit management. Many researchers have attempted to answer the benefits of credit management and assessment of the Philippine Banking Sector in comparison with other country‘s banking industry; nevertheless, none have there been studies related to comparing and assessing credit risk factors in different categories of rural banks. Therefore, this study provided an assessment of the surveys on the Credit Risk Management Practices focused on Rural Banks in Isabela. Using a descriptive research design, the study examined Bangko Sentral ng Pilipinas’ 10 listed rural banks in Isabela. Out of 124 respondents, results indicated that the majority of the rural banks in Isabela identify/classify credit risks on a branch level, and regard the credit risk identification method, to a great extent. Moreover, the banks had high Validation Method in their credit risk assessments and evaluated the actions taken to agreat extent. CAMEL rating system only played a moderate role in the monitoring or gauging the success of the policies adopted towards the management of credit risks. It was also clear that sensitivity, management, and capital were used to a medium extentin assessing the soundness of the rural banks in Isabela, as indicated by the BSP.