Mobile Credit Risk and Performance of Commercial Banks
Abstract
Credit “creation and issuance being the core revenue making doings for commercial banks
comprises dangers to bank and lender. When commercial banks issue loans toward their
customers there exists a risk of the client defaulting .on the other hand when clients’
deposits funds in to their bank accounts and the banks issue loans usually put clients
savings in to a risk. Default by borrowers could consequence to large damages for banks
that might ultimately tip to massive economic anguish which affects the whole economy.
The objective of the study was to establish effect of mobile credit risk management on the
financial performance of commercial banks in Kenya. It also aimed at reviewing the
increasing body of theoretical and empirical studies that have endeavored to examine the
extent and effect of credit risk on financial institutions’ performance. The target population
was all the 42 licensed banks. However, 13 banks were expunged from the analysis because
they became licensed before the study period, ceased operations in the study period, or
were sharia compliant banks that did not charge interest thus making it difficult to obtain
management efficiency. Thus, 30 commercial banks were utilized for the analysis.
Secondary sources of data were employed, and data was collected on; net income, total
loans issued, operating income, loan provisions, net charge offs, total capital, total
weighted risky assets, liquid assets, total deposits, net interest income, and operating
expenses. The unit period of analysis was annual, and data was collected for the period
from 2016 to 2020. The period comprised of five years. The study applied correlation
analysis and multiple linear regression equation with the technique of estimation being
Ordinary Least Squares (OLS) so as to establish the relationship of liquidity, the lending
rate, and non-performing loans on loan volumes issued. The study findings were that the
credit risk, capital adequacy, liquidity, management efficiency, and bank size in unison
significantly affect banks’ financial performance (Prob>Chi2=0.0004<0.05). The study
established that credit risk (P=0.0000<0.05), capital adequacy (P=0.0039<0.05), and bank
size (P=0.0000<0.05) have an association while credit risk (P=0.004<0.05) and bank size
(P=0.005<0.05) have a relationship with bank’s financial performance. The study
concluded that there is a better credit risk management leads to improved financial
performance of commercial banks. The study concluded that the higher the capital
adequacy and bank size, the higher the financial performance of banks. Policy
recommendations were that the study findings should guide government regulators in
making policies and practices to alleviate the financial system from economic crises and
also aid in strategy formulation concerning taxation and other regulatory parameters of the
banks. Further recommendations were that commercial banks and by extension, other
financial institutions, should mainly concentrate on credit risk, capital adequacy, and bank
size in order to provide innovative products and solutions to reach out to greater clientele,
increase their profitability, and maximize shareholders wealth and the study findings are
important to banking sector shareholders, consultants, and commercial banks
administration, as it provides that mitigation of credit risk through correct credit risk
management practices can increase performance in the” sector.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1556]
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