Credit Management Practices and Loan Performance: Empirical Evidence from Commercial Banks in Kenya.
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Date
2020
Authors
Muthoni, Mburu Irene
Mwangi, Lucy Wamugo
Muathe, Stephen M.A
Journal Title
Journal ISSN
Volume Title
Publisher
International Journal of Current Aspects in Finance, Banking and Accounting
Abstract
Commercial banks in Kenya as per the World Bank report were recording higher nonperformance in loans over the study period than the standard globally in spite of Kenya
having the most stable and developed banking system in East and Central Africa region.
Commercial banks non-performing loans for five years from 2015 to 2018 averaged eleven
percent which was higher than the recommended rate of one percent. In Kenya, commercial
banks’ non-performing loans remain higher than the recommended rate which could be due
to inadequate credit management practices. The study therefore aimed at examining the
effect of credit management practices on loan performance of commercial banks in Kenya.
Specifically, the study sought to establish the effect of debt collection policy, client appraisal
and lending policy on the loan performance of commercial banks in Kenya. The underpinning
theory of the study was the 5Cs model for credit. The study used explanatory research design
and the research philosophy adopted was positivism. The target population was 44
commercial banks in Kenya and a census approach was used. Both primary and secondary
data were used. Primary data was collected through structured questionnaires and related to
credit management practices while secondary data was obtained from review of existing bank
loan records in relation to loan amount advanced and non-performing loans for a period of
four years from 2015-2018. The data collected was analyzed using both descriptive and
inferential statistics with the help of SPSS version 22. The study found out that debt collection
policy and lending policy had a positive significant effect on loan performance of commercial
banks in Kenya. However, client appraisal had no significant effect on loan performance of
commercial banks in Kenya. Therefore, the study concluded that commercial banks’ loan
performance could be largely attributed to the efficiency of the credit management practices
put in place at the institutions. The study recommended that commercial banks to regularly
evaluate and update practices relating to debt collection policy, client appraisal and lending
policy that are capable of ensuring that credit risks are identified and recorded from
departmental level to the institution at large. This is vital in light of technological innovations
in the banking sector like mobile lending that may limit commercial banks’ ability to evaluate
and manage credit using traditional methods.
Description
A research article published in International Journal of Current Aspects in Finance, Banking and Accounting
Keywords
Debt Collection Policy, Client Appraisal, Lending Policy, Credit Management Practices, Loan Performance, Commercial Banks in Kenya
Citation
Mburu, I., Mwangi, L., & Muathe, S. (2020). Credit Management Practices and Loan Performance: Empirical Evidence from Commercial Banks in Kenya. International Journal of Current Aspects in Finance, Banking and Accounting, 2(1), 51-63. https://doi.org/10.35942/ijcfa.v2i1.105