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
| Published in | International Journal of Finance and Banking Research (Volume 4, Issue 3) |
| DOI | 10.11648/j.ijfbr.20180403.12 |
| Page(s) | 57-66 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
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Copyright © The Author(s), 2024. Published by Science Publishing Group |
Credit Risk Management, Financial Performance, Commercial Banks, Loan Appraisal
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APA Style
Robert Gitau Muigai, Mary Wanjiru Maina. (2018). Effect of Credit Risk Management Practices on Performance of Commercial Banks in Kenya. International Journal of Finance and Banking Research, 4(3), 57-66. https://doi.org/10.11648/j.ijfbr.20180403.12
ACS Style
Robert Gitau Muigai; Mary Wanjiru Maina. Effect of Credit Risk Management Practices on Performance of Commercial Banks in Kenya. Int. J. Finance Bank. Res. 2018, 4(3), 57-66. doi: 10.11648/j.ijfbr.20180403.12
AMA Style
Robert Gitau Muigai, Mary Wanjiru Maina. Effect of Credit Risk Management Practices on Performance of Commercial Banks in Kenya. Int J Finance Bank Res. 2018;4(3):57-66. doi: 10.11648/j.ijfbr.20180403.12
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Download@article{10.11648/j.ijfbr.20180403.12,
author = {Robert Gitau Muigai and Mary Wanjiru Maina},
title = {Effect of Credit Risk Management Practices on Performance of Commercial Banks in Kenya},
journal = {International Journal of Finance and Banking Research},
volume = {4},
number = {3},
pages = {57-66},
doi = {10.11648/j.ijfbr.20180403.12},
url = {https://doi.org/10.11648/j.ijfbr.20180403.12},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijfbr.20180403.12},
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},
year = {2018}
}
TY - JOUR T1 - Effect of Credit Risk Management Practices on Performance of Commercial Banks in Kenya AU - Robert Gitau Muigai AU - Mary Wanjiru Maina Y1 - 2018/09/27 PY - 2018 N1 - https://doi.org/10.11648/j.ijfbr.20180403.12 DO - 10.11648/j.ijfbr.20180403.12 T2 - International Journal of Finance and Banking Research JF - International Journal of Finance and Banking Research JO - International Journal of Finance and Banking Research SP - 57 EP - 66 PB - Science Publishing Group SN - 2472-2278 UR - https://doi.org/10.11648/j.ijfbr.20180403.12 AB - 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 VL - 4 IS - 3 ER -
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