The relationship between credit risk management and non - performing loans in commercial banks in Kenya
Abstract
The study investigated
th
e relationship between credit risk management and the level of
non
-
performing loans in commercial banks in Kenya
.
The study adopted a descriptive
survey design. Through use of descriptive
and inferential statistics,
this design
was
deemed the best design t
o fulfill the objective of th
e
study.
The target population of the
study was all the 43 commercial banks in Kenya as re
gistered by CBK by December 31,
2013.
The c
ensus method
was used
for this study
since the population was small and
variable
and the insti
tutions are easily
accessible;
hence the sample size was all 43
commercial banks in Kenya.
In order to achieve the set objectives of the study, both
primary and secondary
data
was used. The
primary
data was collected using a
questionnaire. The questionnair
e had both closed and open
-
ended questions. The closed
ended questions enable
d
the researcher to collect quantitative data while open
-
ended
questions enabled the researcher to collect qualitative data. The secondary data
was
obtained from the annual
report
s of the banks. Data
collected covered a per
iod of 5 years,
from 2009
-
2013.
The study concluded that most bank have a sound credit risk
management system and the senior management banks develop policies and procedures
for identifying, measuring, monitoring
and controlling credit risk. The study further
concludes that most banks in Kenya operate under a sound credit risk management
process that reduces loan default which leads to low non
-
performing loans. The study
also concluded that banks take into conside
ration potential future changes in economic
conditions when assessing individual credits and their credit portfolios.
For proper credit
management process, banks should have
management information system
s that
provide
adequate information on the compositio
n of the credit portfolio. The study recommended
that banks must respond to this by combining this information with different credit risk
management techniques used to evaluate the clients by reviewing the lending terms and
conditions of the clients. The o
verall responsibility of risk management vests in bank’s
board. The board should outline risk management strategy and formulate well
-
defined
policies and procedures. Risk management department be made on portfolio or business
line basis, to adopt a holisti
c approach judging the overall risk exposure in assessing and
managing risk profile of the bank.
Publisher
University of Nairobi