a. Definition of Credit Portfolio Management (5 marks): Credit Portfolio Management (CPM) is the process of actively managing a bank’s loan portfolio to optimize risk and return, ensuring compliance with regulatory requirements and maintaining financial stability. It involves assessing, monitoring, and mitigating credit risks across diverse borrowers, industries, and loan types to minimize non-performing loans (NPLs) and align with capital adequacy standards (e.g., BoG’s Capital Requirements Directive, Basel III). In Ghana, CPM is critical post-2017-2019 banking cleanup, where poor portfolio management led to bank failures (e.g., Capital Bank). It includes diversification, stress testing, and loan restructuring to enhance portfolio resilience.

b. Five Key Principles/Procedures for CPM (15 marks, 3 marks each):

1. Risk Diversification:
   • Description: Spread credit exposure across sectors, regions, and borrower types to reduce concentration risk. In Ghana, overexposure to single sectors (e.g., real estate) contributed to NPLs during the cleanup.
   • Procedure: Set exposure limits (e.g., 25% per sector per BoG guidelines) and monitor via portfolio analytics. Example: GCB Bank diversified post-cleanup to reduce reliance on government securities.
2. Credit Risk Assessment and Monitoring:
   • Description: Regularly evaluate borrower creditworthiness using tools like credit scoring, financial analysis, and bureau checks (e.g., XDS Data Ghana).
   • Procedure: Implement quarterly portfolio reviews and early warning systems to detect deteriorating loans, as mandated by BoG’s Credit Risk Management Guidelines.
3. Stress Testing and Scenario Analysis:
   • Description: Assess portfolio resilience under adverse conditions (e.g., cedi depreciation, post-DDEP economic shocks).
   • Procedure: Conduct stress tests per Basel III and BoG’s Liquidity Risk Management Guidelines, simulating scenarios like 20% NPL increase. Example: Stanbic Bank Ghana’s stress tests post-2022.
4. Loan Loss Provisioning and Capital Adequacy:
   • Description: Maintain adequate provisions for expected credit losses and ensure capital ratios meet BoG’s minimum (10% CAR post-Notice No. BG/GOV/SEC/2023/05).
   • Procedure: Apply IFRS 9 provisioning models and monitor CAR monthly. Example: Access Bank Ghana increased provisions after DDEP losses.
5. Portfolio Restructuring and Recovery:
   • Description: Restructure distressed loans to improve repayment and recover NPLs through negotiations or asset seizures.
   • Procedure: Use BoG-approved restructuring plans (e.g., moratoriums) and legal recovery per Act 930. Example: Ecobank Ghana’s recovery of SME loans via collateral sales.

(Marks: 5 for definition, 15 for principles (3 each), totaling 20.)