Credit Risk Management In Banks As Participants In Financial Markets. : A qualitative study of the perception of bank managers in Sweden (Umeå region)

Abstract: Despite the vital role that banks play in Financial markets (FM) by connecting lenders to borrowers, instability in these financial markets, currency values and the global environment has affected the profitability of banks with those in Sweden inclusive. Most if not all companies including banks go into business because they want to create value. The banks like other firms thus look for ways to manage their risks while striving to improve productivity and performance for this value to be created. This productivity only comes when the banks give credits to customers from money deposited by shareholders or savings from customers thus putting them at risk in case of default. Despite this risk, the bank cannot stop the business of credit granting because it is the main source of its profitability. So she finds herself in a situation with profitability on the one hand and risk of default on the other hand. For success to be attained, the only option is good credit risk management practices since in the process, returns are correlated to risk. The risk management practices vary from bank to bank depending on its policies on credit granting decisions. Different banks prioritize the information gotten about customers for credit assessment differently and although they are faced with the same type of risk, their techniques of management are different. This paper is thus geared towards looking at how some banks in Sweden go about their credit risk management activities by looking at the qualities which they consider of companies before granting them credits. This study was carried out using a qualitative research method and open ended interviews. The sample group consisted of three banks in Umeå, Sweden. The analysis of the empirical data showed that credit risk management occupies an indispensible position when lending decisions are carried out. It also goes ahead to show that even though banks may be faced with the same risks, their credit risk management techniques differ, the importance given to the information used for credit assessment differs from bank to bank and collaterals also play a very important role in credit granting decisions. So, for greater results of credit risk management to be attained, banks must value all information about the customer perfectly because any neglected information can be the root cause of their problem or default. Key words: Credit risk, risk management, financial markets, financial intermediaries.