Credit Risk Management and Financial Stability of Commercial Banks in Kenya

Abstract

The istudy iwas iset ito idetermine irelationship ibetween icredit irisk imanagement iand ifinancial istability iof icommercial ibanks iin iKenya. iCorrelational idesign ithat iwas icross isectional iin inature iwas iadopted. The study targeted 39 commercial banks that were operational as at 31 December 2021. Secondary data was adopted in this study on a five year period 2017-2022 and it was on annual basis. The findings were analyzed as supported by SPSS tool where means and standard deviations were generated to provide an overall description of the data. Correlation iand iregression ianalysis iwere ithe iinferential istatistics iadopted iin ithe ianalysis. iIt iwas ishown ithat icredit irisk imanagement ireported ithe ihighest ieffect ion ifinancial istability iof iKenyan icommercial ibanks i(β=0.529) followed by operational efficiency (β=0.509) and then bank size (β=0.348). It was concluded that credit risk is a key enabler of financial istability iof icommercial ibanks. iIt iwas irecommended ithat ithe iboard icommittee iresponsible ifor icredit irisk iamong icommercial ibanks ishould ienhance itheir ioversight irole ito counter the challenge of credit risk in commercial banks. Regular follow up on customer loan accounts should be done to recover the outstanding loan facilities. The policy makers working at the CBK should enact and implement relevant policies in regard to credit management to safeguard the remaining banks against imminent corporate failure and financial distress that are occasioned by financial instability challenges and concerns.