Effect of Credit Risk Management Practices on Performance of Commercial Banks in Kitengela, Kenya.

Abstract

Credit management is a major factor that influences the profitability, growth and survival of different banks. Firms mostly gain from sound credit management if the proceeds of sales surpass the total costs of credit. Actually, weak credit management is the main cause why many commercial banks fail. The target population for this study were 50 staff members from the credit department of Commercial banks. The researcher used convenience sampling in which it narrowed down to 5 Commercial banks in Kitengela which included Equity, Cooperative, Barclays, KCB and Family. The research relied heavily on primary data. The former was gathered through self-administered questionnaires containing closed ended questions. The information was gathered and coded using descriptive statistics, specifically the mean and standard deviation to explain each variable. The data was analyzed through statistical package for social sciences (SPSS). Pie charts, frequency distribution tables, and bar charts had a great role in the presentation of results while ANOVA was used in analyzing the findings. The findings indicate that Credit appraisal positively influenced performance and was insignificant, risk identification had a positive impact and was significant, risk monitoring had a negative impact and was insignificant, risk measurement had a positive and significant effect, risk control had a positive and significant effect while risk monitoring had a negatively and insignificantly influenced performance. Recommendations for the research indicate that banks can invest in other ways of improving performance such as business alignment, channel optimization, process costs, staff productivity, technology and innovation. The study concludes that the banks need a multifaceted approach in their risk management efforts that includes all the practices that were of focus to this study in order to realize the full benefits relating to risk management programs. The study suggests that further research can be done on impact of credit risk management on financial performance of other institutions like microfinance institutions and SACCOs.