The Effect of Credit Risk Management Strategies on Financial Performance of Commercial Banks in Kenya

Abstract

There has been much ongoing discussion on the impacts of credit risk management strategies with the development of dynamic foreign exchange and the need to define plans which would enhance financial development and keep up a low inflation. Commercial banks are in the matter of assembling and loaning monetary assets to borrowers. There has been the collapse of three commercial banks in Kenya in the past three years with Dubai Bank, Imperial Bank and Chase Bank being put under receivership in 2016. The main objective of the study was to carry out a survey of credit risk management strategies on the financial performance of commercial banks in Kenya. The objectives of this study were to identify the types of credit risk strategies that commercial banks in Kenya use, to establish the impact of credit risk management practices on performance of commercial banks in Kenya and the challenges they faced in credit risk management. The study used a descriptive research design to enable the researcher to generalize the findings to a larger population. The study targeted 43 commercial banks in Kenya. Primary data was collected using questionnaires which were administered using drop and pick method by the researcher. The data was then analyzed using SPSS version 23. The study revealed that all commercial banks in Kenya had CRM strategies in place which were identified as internal lending policies, credit bureaus, credit derivatives and credit securitization. The findings also revealed how the CRM strategies minimize non-performing loans, increase lending thus profitability. The study recommended that all commercial banks and other lending institutions should adopt credit management strategies as they have been found to be able to transfer risks which led to increased lending thus profitability