Mobile Credit Risk and Performance of Commercial Banks

Abstract

Credit “creation and issuance being the core revenue making doings for commercial banks comprises dangers to bank and lender. When commercial banks issue loans toward their customers there exists a risk of the client defaulting .on the other hand when clients’ deposits funds in to their bank accounts and the banks issue loans usually put clients savings in to a risk. Default by borrowers could consequence to large damages for banks that might ultimately tip to massive economic anguish which affects the whole economy. The objective of the study was to establish effect of mobile credit risk management on the financial performance of commercial banks in Kenya. It also aimed at reviewing the increasing body of theoretical and empirical studies that have endeavored to examine the extent and effect of credit risk on financial institutions’ performance. The target population was all the 42 licensed banks. However, 13 banks were expunged from the analysis because they became licensed before the study period, ceased operations in the study period, or were sharia compliant banks that did not charge interest thus making it difficult to obtain management efficiency. Thus, 30 commercial banks were utilized for the analysis. Secondary sources of data were employed, and data was collected on; net income, total loans issued, operating income, loan provisions, net charge offs, total capital, total weighted risky assets, liquid assets, total deposits, net interest income, and operating expenses. The unit period of analysis was annual, and data was collected for the period from 2016 to 2020. The period comprised of five years. The study applied correlation analysis and multiple linear regression equation with the technique of estimation being Ordinary Least Squares (OLS) so as to establish the relationship of liquidity, the lending rate, and non-performing loans on loan volumes issued. The study findings were that the credit risk, capital adequacy, liquidity, management efficiency, and bank size in unison significantly affect banks’ financial performance (Prob>Chi2=0.0004<0.05). The study established that credit risk (P=0.0000<0.05), capital adequacy (P=0.0039<0.05), and bank size (P=0.0000<0.05) have an association while credit risk (P=0.004<0.05) and bank size (P=0.005<0.05) have a relationship with bank’s financial performance. The study concluded that there is a better credit risk management leads to improved financial performance of commercial banks. The study concluded that the higher the capital adequacy and bank size, the higher the financial performance of banks. Policy recommendations were that the study findings should guide government regulators in making policies and practices to alleviate the financial system from economic crises and also aid in strategy formulation concerning taxation and other regulatory parameters of the banks. Further recommendations were that commercial banks and by extension, other financial institutions, should mainly concentrate on credit risk, capital adequacy, and bank size in order to provide innovative products and solutions to reach out to greater clientele, increase their profitability, and maximize shareholders wealth and the study findings are important to banking sector shareholders, consultants, and commercial banks administration, as it provides that mitigation of credit risk through correct credit risk management practices can increase performance in the” sector.