credit risk refers to the risk that a borrower will default on a loan obligation to a bank or the issuer of a security held by a bank will default on its obligations. credit risk may arise in cases of inadequate income, loss in business, death, unwillingness and other reasons, on the side of the borrower. large losses generated by defaults of borrowers or issuers of security can lead to insolvency and possibly to the bankruptcy of a bank. it was alleged that there was too much connivance in local banks to pick loans without any recourse to paying back or following appropriate policies. furthermore, due to bad corporate governance, appropriate risk management practices to reduce credit risks such proper monitoring and measuring mechanisms were not observed in credit deliveries.