Effect of Credit Risk Management Practices on Performance of Commercial Banks in Kenya
International Journal of Finance and Banking Research
Volume 4, Issue 3, June 2018, Pages: 57-66
Received: Jun. 26, 2018; Accepted: Aug. 30, 2018; Published: Sep. 27, 2018
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Authors
Robert Gitau Muigai, School of Business & Economics, Kirinyaga University, Kerugoya, Kenya
Mary Wanjiru Maina, School of Business & Economics, Kirinyaga University, Kerugoya, Kenya
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Abstract
Credit default risk has been cited as the primary cause of bank failures in Kenya. Between 1984 and 1991 there were a total of 29 bank failures reported. This is an alarming rate given that it represents on average two or more bank failures per year during that period. Though this trend has been reversed, credit default risks continue to be a major challenge among banks. The main objective of the study is to establish the effect of credit risk management practices on performance of commercial banks in Kenya. Particularly, the study examined the effect of loan appraisal, lending requirements, credit management tools and loan recovery process on financial performance of commercial banks in Kenya. The study adopted descriptive research design. The target population were all the licensed commercial banks operating in Kenya by the year 2017 as reported in the Bank Supervisory Report 2017. The unit of observation comprised the credit officers and finance managers of the commercial banks. A census was adopted on all the 39 commercial banks hence a total of 78 respondents were targeted. The study used both primary and secondary data. The study findings revealed that loan appraisal, lending requirement, credit management tools and loan recovery process had a positive and significant relationship with the financial performance of commercial banks in Kenya. The study recommended that commercial banks need to establish an overall credit limits at individual borrowers as well as clearly establish a process for approving new and refinancing of existing credits. Further, there is need for follow-up on payment schedule of borrowers and reminding customers before maturity. The commercial banks also need to develop a well-documented lending procedure, do lending against its lending standards, set lending policies in line with the market requirement as well as develop well-established lending policies regarding interest rates
Keywords
Credit Risk Management, Financial Performance, Commercial Banks, Loan Appraisal
To cite this article
Robert Gitau Muigai, Mary Wanjiru Maina, Effect of Credit Risk Management Practices on Performance of Commercial Banks in Kenya, International Journal of Finance and Banking Research. Vol. 4, No. 3, 2018, pp. 57-66. doi: 10.11648/j.ijfbr.20180403.12
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Copyright © 2018 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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