Assessment of compliance with credit risk management regulatory guidelines in Tanzanian commercial banks

Exposure to credit risk is the leading source of problems in banking industry worldwide. The banking industry in Tanzania, which is in its infancy stage, the exposure to credit risk is inevitable, and indeed its one of the biggest challenge. The need of having stable and sound banking system is of paramount importance for the economic development of Tanzania. This can only be achieved if banks can identify, measure, monitor and control credit risk in their trading environment. This research assessed the level of compliance by Tanzanian commercial banks, to credit risk management regulatory guidelines issued by Basle committee on Banking supervision and bank of Tanzania. The research used primary data collected from interviews and responses from administered questionnaire to all 22 commercial banks operating in Tanzania. These qualitative data was tabulated to determine the percentage of positive for YES and negative for NO responses on various key questions testing the level of compliance to the guidelines, which were further analysed on descriptive statistics tools using SPSS software. The study finds that compliance to Credit Risk Management Regulatory Guidelines by Tanzanian commercial banks is generally sound. Credit granting process was found to be sound at 75.07%, and credit portfolio review by an independent party was also found to be sound at 82.12%. However credit administration, measurement and controls were found to be weak at 67.25%. Commercial banks are recommended to correct these weakness since failure to monitor credits has proved to be one of the reasons for credit going bad worldwide. Cost of non-compliance to regulatory guidelines is severe in the entire industry and the economy, if non-compliance leads to banks failures