Implementation of credit rating scoring strategies at national industrial credit bank

Abstract

Credit reference reports help banks stem out misconduct in the banking sector since customers whose credit reports indicate as having been involved in malpractices are subjected to stringent terms and conditions. Credit information sharing to bank customers, is expected to minimize the problem of information asymmetry in the financial sector. Information asymmetry between banks and borrowers is one of the main contributors to high cost of credit as banks tend to load a risk premium to borrowers because of lack of customer information. This in turn, increases cost of borrowing, meaning high repayment instalments of loans which translate to a high level of default. The Credit Information Sharing (CIS) apparatus is therefore expected to facilitate the development of information capital to reduce information asymmetry or increase information symmetry and allow cost of credit to decline substantially. It is therefore expected that savings arising from the sharing of credit information will translate to lower cost of credit. The executive management at National Industrial Credit Bank which comprises of 7 executives was interviewed directly using an already set interview guide as so to access their opinion on what they perceived to be the successes in implementation of credit rating scoring strategies and the measures they have taken to mitigate the challenges. The study used primary data that was collected using interview guide containing both structured and unstructured questions. Given this fact, content analysis was used to analyze the data. Findings from the study indicated that there were various challenges affecting NIC bank in its implementation of credit score rating process. These included structure, culture, technology, leadership, lack of focus, choice of external service strategy consultants, competition in the industry, very high cost of operation, and substitute products/services. The study concludes that the organization had in a way been able to amend its implementation of credit score rating process as per the challenges. This was through application of all management functions namely planning, controlling, organizing, motivating, leading, directing, integrating, communicating, and innovation to the implementation process. From the findings, the study also concluded that over 90% of the challenges faced by NIC bank while implementing their strategy are largely attributable to the internal environment. These challenges revolve around the organizational resources and organizational processes. This clearly shows that managers place little or no emphasis on implementation phase while they are drafting their strategies. Most of these challenges are avoidable if they have been accounted for during the analysis and formulation stages. It is obvious that many strategies fail to realize the anticipated benefits due to challenges encountered during implementation. The study recommends that for a successful strategy implementation, firms in Kenya should adopt such measures as; spending more time on analysis so as to identify problems that could surface in implementation phase.