Credit Management Techniques and Loans Performance of Performance of Commercial Banks in Kenya

Abstract

Effective credit management strategies are of utmost significance across both micro and macro-operational scales. It is essential to acknowledge that the apportionment of credit may entail heightened costs for borrowers who fulfill their commitments, deplete accessible funds, and constrict a financial entity's adaptability in rerouting resources toward alternative pursuits. The principal aim of this inquiry is to establish the ramifications of credit management techniques on the loan performance of commercial banks operating within the Kenyan context. The choice of research design was carefully considered to ensure that it aligns with the research objectives and is capable of addressing the prevailing challenges. The use of descriptive research design is particularly beneficial for studies seeking to demonstrate the cause and effect of relationship among variables by providing a clear framework for analysis and interpretation of data. This examination focused on 38 commercial banks licensed by CBK. The population under study plays a critical role in the research process. In this particular study, a census approach has been adopted as it scrutinizes all the elements of the population. The data for this inquiry was sourced from primary means, specifically from Questionnaires. Garnering of this primary via the question particularly addressed the independent variable for instance; client appraisal, credit administration, credit risk management and debt collection. Moreover, secondary data was useful in sourcing detailed information to support the study from Central Bank of Kenya, Kenya Banking Association and individual banks to gather information on loan performance, age and firm size. In order to achieve this goal, various tools and techniques was utilized, with SPSS being a key component of the analysis process. Specifically, multiple linear regression was harnessed to analyze the data and generate meaningful insights. A regression analysis was conducted to determine the linear relationship between the variables of the study, which included age, credit risk mitigation, client appraisal, bank size, credit administration, debt collection on loan performance. From the results of regression analysis, it can be noted that the model estimated explains up to 71.9% of the total changes in loan performance as evidenced by the value of R Square in the model of 0.719. This means that the variables age, credit risk mitigation, client appraisal, bank size, credit administration and debt collection are significant in providing explanations on commercial bank loan performance. A rise of one unit in client assessment yields a significant uptick in loan effectiveness by 6.9%, maintaining constant all influencing elements. Additionally, an elevation of one unit in debt retrieval sparks a substantial progression in debt recovery by 20.6%, while preserving consistency in all variables. Advancing credit risk mitigation by a solitary unit result in a 31.4% boost in loan performance, with other factors held steady. A one-unit increase in credit oversight translates to a 22.5% enhancement in loan effectiveness, with all variables remaining constant. Augmenting bank size by one unit leads to a 34.2% augmentation in loan performance, under constant influencing factors. Furthermore, a solitary unit increment in age corresponds to a 23.1% surge in loan effectiveness, with the maintenance of all variables.