David Njine Kimotho

Jomo Kenyatta University of Agriculture and Technology

Supervisor: DR. Mouni Gekara

2015

CITATION: Kimotho D.N., & Gekara M. (PhD) (March, 2016). Effects of Credit Risk Management Practices on Financial Performance of Commercial: International Journal of Economics & Finance (IJEF). Volume 2 (3), 116-16. ISSN 2105 6008.

Abstract

Financial risk in a banking organization is possibility that the outcome of an action or event could bring up adverse impacts. Such outcomes could either result in a direct loss of earnings or capital or may result in imposition of constraints on bank’s ability to meet its business objectives. The purpose of this study was to examine the effects of credit risk management practices on financial performance of Commercial Banks in Kenya. The study examined the effects that credit risk identification have on financial performance of commercial banks in Kenya; the effects of credit risk insurance on financial Performance of commercial banks in Kenya; the effects of credit risk monitoring on financial performance of commercial banks in Kenya and the effects of credit appraisal analysis on financial performance of commercial banks in Kenya. The study adopted descriptive research design and the target population consisted of credit risk managers, credit analysts and debt recovery managers from any branch of all commercial banks in Nairobi as licensed by the Central Bank of Kenya. The study used a census method to select the sample size since the target population is manageable. Primary data from the respondents was collected using a semi-structured questionnaire. Secondary sources of data gave insights into the concept prior to the study being conducted. The data was analyzed using Statistical Package for Social Sciences (SPSS) version 20. The study revealed that credit risk management procedures are used to influence profitability of the bank positively and also recommends the management of the banks to oversee facilitation of credit risk management as a substantial degree of standardization of process and documentation. It is important for banks management to understand how they can edge themselves against the eminent dangers of over exposure to credit risk whose importance cannot be understated as can be realized from the findings that can impact negatively on their profitability. Commercial banks should also try to keep their operational cost low as this negates their profits margin thus leading to low financial performance. Commercial banks should also try to keep their operational cost low as this negates their profits margin thus leading to low financial performance. The bank should consider risk identification as a process in credit risk management and focus in interest rate risks and foreign exchange risks to a great extent in the risk identification map.

Keywords: credit management, risk insurance, risk monitoring, risk identification, risk appraisal, financial performance

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