The Effect of Credit Risk Management on the Financial Performance of Commercial Banks in Kenya

Abstract

The contemporary economy is fundamentally credit based hence commercial banks assume a pivotal role through credit creation. However recent bank collapse witnessed in the country has brought into sharp focus management of credit risk. This research tries to examine the effect of credit risk administration on the financial performance of business banks in Kenya. It will endeavor to build up if there exists a relationship between credit risk management using the determinants of credit risk management as follows: Credit analysis, Credit risk identification, Credit scoring mechanism and Credit risk monitoring and the financial performance of commercial banks in Kenya. Several literatures were reviewed to give the researcher insights into the subject which has enabled the researcher to identify gaps in the previous studies. Both primary and secondary information were utilized in the investigation. Primary information on credit risk management was gathered utilizing a questionnaire while secondary information on the banks execution in budgetary viewpoint was separated from different bank's distributed fiscal reports for a long time from 2013-2017.The gathered information was condensed by elucidating insights like standard deviation and the mean and afterward broke down utilizing regression analysis and correlation examination. The examination found a critical positive relationship between credit analysis, credit scoring and the financial performance of business banks in Kenya, it additionally found a negative however irrelevant relationship between credit identification and performance and finally it found a positive yet unimportant relationship between credit monitoring and financial performance. The investigation prescribed that the administration of business banks put more exertion using loan analysis and acknowledge scoring components as this will enable capture credit risk at the beginning, moreover it suggested that the administrative bodies should think of arrangements and controls that fortify credit risk management practices in the business banks.