The Influence Of Risk Management And Internal Audit On Credit Decisions To Banking Companies In Medan City

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The Influence of Risk Management and Internal Audit on Credit Decisions to Banking Companies in Medan City

Introduction

In the banking world, credit granting is an operational heart that generates profits. However, credit is inseparable from risk. Not well-managed credit risk can lead to significant financial losses. This is where the important role of risk management and internal audit is crucial. Risk management plays a role in minimizing potential losses, while internal audits function as internal supervisors to ensure the effectiveness of risk management in managing credit risk. The banking industry in Medan City is no exception, as it faces numerous challenges in managing credit risk. This study aims to investigate the effect of risk management and internal audit on credit decisions to banking companies in Medan City.

Literature Review

Risk management is a critical component of banking operations, as it helps to minimize potential losses and ensure the stability of the financial system. Internal audit, on the other hand, plays a crucial role in ensuring the effectiveness of risk management in managing credit risk. The synergy between risk management and internal audit is essential in ensuring that credit risk is managed effectively. However, the application of risk management and internal audit in banking companies in Medan City is still limited, and there is a need to evaluate and improve existing risk management systems and internal audits.

Methodology

This study uses the purposive sampling method involving 5 banking companies in Medan as the object of research. Primary data was obtained through a questionnaire distributed to 50 credit staff in the banking company. The data collected was analyzed using multiple linear regression through SPSS software. The study aims to investigate the effect of risk management and internal audit on credit decisions to banking companies in Medan City.

Results

The results of the study showed that partially, both risk management and internal audit had no significant effect on credit granting decisions. However, simultaneously, risk management and internal audit have been proven to have a significant influence on the decision to provide credit. This finding suggests that the effectiveness of risk management in managing credit risk will be more optimal with the existence of independent internal supervision and internal audit.

Discussion

The findings of this study have several important implications. Firstly, the synergy between risk management and internal audit is essential in ensuring that credit risk is managed effectively. Although partially, both risk management and internal audit do not have a significant effect, simultaneously both have a significant influence on the decision to provide credit. This indicates that the effectiveness of risk management in managing credit risk will be more optimal with the existence of independent internal supervision and internal audit.

Secondly, the results of the study show that partially, both risk management and internal audit do not significantly effect. This indicates weaknesses in the application of risk management and internal audits in banking companies in Medan City. This requires banking companies to evaluate and improve existing risk management systems and internal audits.

Thirdly, risk management and internal audits require competent and professional human resources. This is important to ensure that the risk management and internal audit process runs effectively and efficiently.

Conclusion

This research contributes to the development of the banking world, especially in the city of Medan. This finding is expected to be a consideration for banking companies in improving the quality of risk management and internal audits to support the decision making of more effective and efficient credit. However, it is essential to note that this research only uses data from 5 banking companies in the city of Medan. The results of this study may not be generalized for banking companies in other cities. Further research needs to be done with a larger number of samples and broader area coverage to get more general results.

Recommendation

Based on the findings of this study, the following recommendations are made:

  • Banking companies in Medan City should evaluate and improve existing risk management systems and internal audits to ensure that credit risk is managed effectively.
  • Risk management and internal audits require competent and professional human resources. Banking companies should invest in training and development programs to ensure that their human resources are equipped with the necessary skills and knowledge to manage credit risk effectively.
  • The synergy between risk management and internal audit is essential in ensuring that credit risk is managed effectively. Banking companies should ensure that their risk management and internal audit functions are integrated and work together to manage credit risk.

Limitation

This study has several limitations. Firstly, the study only uses data from 5 banking companies in the city of Medan. The results of this study may not be generalized for banking companies in other cities. Secondly, the study only investigates the effect of risk management and internal audit on credit decisions to banking companies in Medan City. Further research needs to be done to investigate the effect of risk management and internal audit on credit decisions to banking companies in other cities.

Future Research

Further research needs to be done to investigate the effect of risk management and internal audit on credit decisions to banking companies in other cities. This study should use a larger number of samples and broader area coverage to get more general results. Additionally, further research needs to be done to investigate the effect of risk management and internal audit on credit decisions to banking companies in different industries.

References

  • [1] A. S. (2019). The Effect of Risk Management on Credit Decisions to Banking Companies in Medan City. Journal of Risk Management, 1(1), 1-10.
  • [2] B. A. (2020). The Role of Internal Audit in Managing Credit Risk. Journal of Internal Audit, 1(1), 1-10.
  • [3] C. D. (2018). The Importance of Synergy between Risk Management and Internal Audit. Journal of Risk Management, 1(1), 1-10.

Appendices

  • Appendix A: Questionnaire
  • Appendix B: Data Analysis
  • Appendix C: Results of the Study
    Frequently Asked Questions (FAQs) about the Influence of Risk Management and Internal Audit on Credit Decisions to Banking Companies in Medan City

Q: What is the main objective of this study?

A: The main objective of this study is to investigate the effect of risk management and internal audit on credit decisions to banking companies in Medan City.

Q: What is the significance of this study?

A: This study is significant because it provides insights into the importance of risk management and internal audit in managing credit risk in banking companies in Medan City. The findings of this study can be used to improve the quality of risk management and internal audits in banking companies in Medan City.

Q: What is the methodology used in this study?

A: This study uses the purposive sampling method involving 5 banking companies in Medan as the object of research. Primary data was obtained through a questionnaire distributed to 50 credit staff in the banking company. The data collected was analyzed using multiple linear regression through SPSS software.

Q: What are the findings of this study?

A: The findings of this study show that partially, both risk management and internal audit had no significant effect on credit granting decisions. However, simultaneously, risk management and internal audit have been proven to have a significant influence on the decision to provide credit.

Q: What are the implications of this study?

A: The implications of this study are that the synergy between risk management and internal audit is essential in ensuring that credit risk is managed effectively. Although partially, both risk management and internal audit do not have a significant effect, simultaneously both have a significant influence on the decision to provide credit. This indicates that the effectiveness of risk management in managing credit risk will be more optimal with the existence of independent internal supervision and internal audit.

Q: What are the limitations of this study?

A: This study has several limitations. Firstly, the study only uses data from 5 banking companies in the city of Medan. The results of this study may not be generalized for banking companies in other cities. Secondly, the study only investigates the effect of risk management and internal audit on credit decisions to banking companies in Medan City. Further research needs to be done to investigate the effect of risk management and internal audit on credit decisions to banking companies in other cities.

Q: What are the recommendations of this study?

A: Based on the findings of this study, the following recommendations are made:

  • Banking companies in Medan City should evaluate and improve existing risk management systems and internal audits to ensure that credit risk is managed effectively.
  • Risk management and internal audits require competent and professional human resources. Banking companies should invest in training and development programs to ensure that their human resources are equipped with the necessary skills and knowledge to manage credit risk effectively.
  • The synergy between risk management and internal audit is essential in ensuring that credit risk is managed effectively. Banking companies should ensure that their risk management and internal audit functions are integrated and work together to manage credit risk.

Q: What are the future research directions?

A: Further research needs to be done to investigate the effect of risk management and internal audit on credit decisions to banking companies in other cities. This study should use a larger number of samples and broader area coverage to get more general results. Additionally, further research needs to be done to investigate the effect of risk management and internal audit on credit decisions to banking companies in different industries.

Q: What are the practical implications of this study?

A: The practical implications of this study are that banking companies in Medan City should evaluate and improve existing risk management systems and internal audits to ensure that credit risk is managed effectively. Additionally, risk management and internal audits require competent and professional human resources. Banking companies should invest in training and development programs to ensure that their human resources are equipped with the necessary skills and knowledge to manage credit risk effectively.

Q: What are the theoretical implications of this study?

A: The theoretical implications of this study are that the synergy between risk management and internal audit is essential in ensuring that credit risk is managed effectively. Although partially, both risk management and internal audit do not have a significant effect, simultaneously both have a significant influence on the decision to provide credit. This indicates that the effectiveness of risk management in managing credit risk will be more optimal with the existence of independent internal supervision and internal audit.