CREDIT RISK MANAGEMENT AND FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA

Abstract

This study assessed the effect of credit risk management on financial performance of commercial banks in Kenya. The study adopted a descriptive survey design. The study targeted a population of 200 employees within 43 commercial banks legally operating in Kenya as per the 2018 to 2022 annual reports by the CBK. However, the study specifically focused on 5 commercial banks with a specific target population of 108 employees in all the banks. The five specific banks were selected owing to their vast fame and long existence in the financial market and huge customer base. Questionnaires were the main data collection instruments and were used to source for the data. Internal consistency checks of data were performed using Cronbach’s alpha to check for the reliability of data. The reliability of the data was arrived at by using cronbach’s alpha. Financial performance on commercial banks was assessed in terms of return on assets. Data analysis was done using both quantitative and qualitative methods. The data collected was edited, coded and then analyzed using descriptive statistics and inferential analysis. The inferential analysis performed included correlation and regression analysis. The study results showed that credit risk management has an inverse and significant impact on the performance of these commercial banks. The study concluded that banks had managed their liquidity and that bank earnings were positively influenced by higher interest rates. However, their performance was negatively influenced by high credit risk management arising from nonperforming loans and foreign currency exchange. This study recommended that commercial banks should have a proper methodology for the measurement, identification, and control of credit risk management. It is important that all banking ventures have a comprehensive risk mitigation process embedded within their operations and that this is subjected to appropriate board and upper management oversight. Commercial banks should also know the credit risk appetite of its key stakeholders such as directors and gauge appropriate responses to them. This study also recommended that all banks should explore more methods to enhance credit risk management capacities. Key words: Credit Risk Management, Financial Risk Management, Financial Performance CITATION : Imbuye, E. N., & Miroga, J. (2023). Credit risk management and financial performance of commercial banks in Kenya. The Strategic Journal of Business & Change Management, 10 (3), 597 – 607. http://dx.doi.org/10.61426/sjbcm.v10i3.2728