Effect Of Internal Control System On Credit Risk Management In Commercial Banks In Kenya

Abstract

The purpose of the study is to investigate the effect of internal control system on credit risk management among commercial banks in Kenya. The study sought to determine the effect of the control environment on credit risk management in commercial banks in Kenya; investigate the effect of risk assessment on credit risk management in commercial banks in Kenya; examine the effect of information and communication on credit risk management in commercial banks in Kenya; and determine the effect of the control activities on credit risk management in commercial banks in Kenya. Descriptive research design was used in investigating the research questions. The study used census, in which every unit in the population participated in the study; meaning 43 respondents from the 43 banks were selected for the study. Questionnaires were used to collect primary data in this study. Questionnaires were pilot tested and subjected to validity and reliability testing. Standardized questionnaires were self-administered to respondents at their places of work. All the data collected were entered into an Excel sheet, organized and cleaned for any inconsistencies. The Excel data sheet was uploaded in Statistical Packages in Social Sciences software (SPSS 23) for descriptive (percentages, means, standard deviations) and inferential analysis (correlation analysis, regression analysis). The regression findings showed that the control environment and credit risk management in commercial banks in Kenya. There was a negative relationship between risk assessment and credit risk management, implying that the risk assessment framework was inadequate in achieving the desired performance objectives in credit risk management. Information and communication had a positive influence on credit risk management, but the relationship was not statistically significant. Finally, there was a positive and significant effect of control activities on credit risk management. The study recommends that commercial banks should routinely carry out evaluations and continually strengthen independent oversight, build a robust risk assessment model, regularly review anti-fraud policies, and update the enterprise security framework.