Credit risk, efficiency and performance of commercial banks in Kenya
Lakasia, Japheth Manguya
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Banking in Kenya is very dynamic and robust. Performance of this sector measured by profitability is very important and should be monitored closely because it contributes immensely to economic growth in Kenya. Vision 2030 of Kenya envisages an increase of savings to 10% of GDP. The government of Kenya is relying on commercial banks to mobilize the savings that will . lead to extension of loans to the public to fuel development. Credit creation is the main income generating activity of banks; however banking comes with a couple of risks including credit risk captured by the level of nonperformingloans among other factors. Recently the level of nonperforming loans in the Kenyan banking industry has been on the upward trend. There is a felt . need to ad~ress this trend because an increase in nonperformingloans (indicator of credit risk)• may hamper commercial banks from achieving their objectives. Therefore this study seeks to . establish the effects of efficiency and credit risk on performance of commercial banks. This ..researchis significant in the sense that it will help banks to place themselves strategically towards achievement of their goals. The study will employ Data Envelopment Analysis to determine•• .. techriical efficiency of commercial banks while panel data regression model will used to establish credit risk on performance of commercial banks.