Strategic Responses Adopted by Kenya Commercial Bank to Cope With the Challenges of Non Performing Loans
Abstract
Organizations operate as open systems that are dependent on the environment for their inputs and for the release of their outputs. The current business environment is very dynamic and rapidly expanding mainly because of globalization. An organization’s inability to recognize the dependence existing between itself and its environment is a key attribute in explaining a loss of competitive performance in that organization. Organizations therefore, ought to monitor and scan their external environments, anticipate and adapt timely to continual change in order for their survival and prosperity.
The banking environment is dynamic and always presenting totally new challenges to an individual organization. The principal business activity of most banks is lending. This is because the loan portfolio typically is dominant as the largest asset and also as a source of revenue to a bank. Banks lend in order to grant loans on a sound and collectible basis, to invest their funds profitably for the benefit of shareholders and also to serve the legitimate credit needs of their communities. The business of lending presents a risk of default, which worsens as the business environment factors such as economic and political environment, also worsens. The increase in NPLs in a bank tends to be followed by decrease in measured cost efficiency, and therefore low profitability.
The purpose of this study was to identify the strategic responses undertaken by KCB fn addressing the challenge of non-performing loans. KCB is one of the largest banks in the East African region, having branches in Kenya, Southern Sudan, Ruanda, Tanzania and Uganda. The bank has the largest asset base and carries out lending in all its subsidiaries. The loans therefore are segmented into several portfolios in order to meet the needs of different customers in the region.
The study made use of primary data, which was collected through face to face interviews with the researcher in order to obtain an in-depth investigation and capture the real-life context of KCB. An interview guide was used to collect data on the response strategies adopted by the bank in managing non-performing loans. A total of fifteen respondents were interviewed who comprised managers in Retail, Mortgages, Credit, Risk and Operations. The data obtained from the interview guide was analyzed qualitatively by making general statements on how categories or themes of data are related. Content analysis was done by observation and giving detailed description of the strategic responses given.
The strategic responses identified included the enhanced credit analysis, centralization of lending processes, regional portfolio management, frequent customer physical visits, training of staff, independent Risk and Credit Administration Units and applying temporary restrictions on lending to certain sectors.
As a result of the research findings, it was recommended that further research should be undertaken on the implementation and effect of such response strategies on different portfolios, which represent different customer segments. It will be interesting to carry out an impact analysis on such strategies on each individual portfolio and come up with the best loan management diagnosis for each of the portfolios. This will help the bank to apply the right strategies that would match a particular loan portfolio.
The limitations of this study included that the respondents were very busy individuals and therefore a time constraint was experienced during the research. The second limitation applies to all case studies, where the findings cannot be used for generalization purposes because the findings may be unique to the institution depending of the level of development, the current environmental and the internal capabilities. Lastly, the secrecy in a financial institution is a limitation because crucial information cannot be obtained because the respondents have committed to keeping in house affairs as confidential as possible.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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