The relationship between credit risk management practices and the level of non.performing loans for commercial banks in Kenya
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Date
2011Author
Mutangili, Onesmus M
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
Commitment to credit risk management is an essential component of a comprehensive
technique to risk management and critical to the long-term success to all banking
institutions. The rising non-performing loans and compressed profit margins, combined
with slow economic growth over the past years have created a much more challenging
environment for banks. The objective of this study was therefore to find out the
relationship between credit risk management practices and the level of non-performing
loans for commercial banks in Kenya.
Causal research design was used for the study. The population of the study consisted of
all the 44 commercial banks in Kenya. The study involved the collection of primary and
analysis of secondary data for the purpose of meeting its objective. Self-administered
questionnaires were used to collect the data. The study intended to establish the
relationship between credit risk management and the level of non-performing loans and
therefore linear regression analysis model was used to determine the nature of this
relationship.
The study revealed that commercial banks review their credit policy yearly and half
yearly, and that employees are made aware of credit policies through credit manual,
regular training, regular meeting and supervision. The study further revealed that
methods mostly used in credit risk assessment among commercial banks in Kenya are;
risk adjusted return on capital and linear probability model. The study established that
there is a negative relationship between the level of non-performing loans and credit risk
management practices in banks with a correlation coefficient of 0.918, implying that the
level of non-performing loans is inversely affected by credit risk management practices.
The study recommended that there is need for commercial banks to adopt various credit
risk management’s practices in order to reduce their level of non-performing loans. It
further recommended for sustainable and reliable credit database for immediate and
quicker use when needed by banks.
Sponsorhip
University of NairobiPublisher
School of business