The Relationship Between Credit Risk Management Practices and Liquidity Ratio of Commercial Banks in Kenya

Abstract

The purpose of the study was to determine the relationship between credit risk management practices and liquidity ratio of commercial banks in Kenya. The study was a descriptive survey study and utilized secondary data on financial performance from the 43 Commercial banks in Kenya during 2015 year of study. Two types of analysis were used for data analysis i.e. descriptive and inferential statistics. Descriptive statistics was useful for coming up with an understanding of the data and thus helped in organizing and summarizing of the data while inferential statistics was to help in making of valid conclusions from the data. Correlation and regression analysis was used in order to find the degree of relationship and thus help in fulfilling the purpose of the study. The study findings indicate that risk management practices are significant in influencing liquidity ratio of banks as indicated by the Regression analysis relationship coefficients. This implies that the risk management practices are relied upon to make conclusions about the liquidity ratio of commercial banks as shown by their strong positive relationship. The study found out that of risk management practices is positively related to Liquidity ratio of Commercial banks in Kenya .implying that better management of risk increases liquidity ratio. The independent variables that were studied explain a substantial 15% of liquidity ratio of Commercial banks in Kenya as adjusted R2 (0.15) represented. Therefore, while 15% of liquidity ratio was contributed by the independent variables of Kenya‟s commercial bank while 85% of the liquidity ratio was contributed by the unstudied factors and random variations of Commercial Banks of Kenya.