Relationship Between Credit Risk Management Practices and Financial Performance of Deposit Taking Savings and Credit Co-operative Societies in Kenya

Abstract

In the SACCO subsector the subject of credit risk administration cannot be underestimated due to the observed levels of loan default resulting from the mode of doing business which solely relies on guarantor ship as security for loans granted. This study was undertaken with the objective of establishing whether there exists a relationship between credit risk management practices and financial performance of deposit taking savings and credit co-operative societies in Kenya. A sample of 60 deposit taking SACCOs was selected using random sampling method, the study data was extracted from audited financial statements and reports as published by SASRA in its annual supervision reports for the period 2011 to 2015.The study adopted a descriptive research design and used CAMELS rating model as determinants (as independent variables) of financial performance of deposit taking SACCOs.The data was analyzed using multiple linear regression and correlation, the results were interpreted based on R-squared, Adjusted R-squared. Test of signifance (F) was done through Analysis of Variance, coefficients of independent variables and their P-values. The analyzed results showed a positive relationship between the independent variables and the dependent variables.