Credit Risk and Financial Performance of Commercial Banks in Kenya
Mbaluto, Cecilia Mueni
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Some commercial banks in Kenya have been performing poorly in the last decade to the extent that several banks have collapsed and others placed under receivership. Commercial banks in Kenya are considered as economic backbone and therefore any slight change in their performance may bring far-reaching implications to the economy .The recent failures in the banking and financial services industry has raised several questions with respect to the growing awareness and need for appropriate credit risk evaluation in financial institutions. Credit loans forms the largest source of income to the Kenya commercial banks and it is for this reason that this study intends to establish the effect of credit risk on the performance of Kenyan commercials banks. The study focused on the following specific objectives; to determine the effect of asset quality on performance of commercial bank’s in Kenya, to establish the effects of insider lending on performance of commercial bank’s in Kenya, to ascertain the effects loan growth rate on performance of commercial bank’s in Kenya and to establish the effects of provision for loan losses on performance of commercial bank’s in Kenya. The study adopted descriptive research design utilizing panel data covering the period from 2009-2017.The population comprised of all the 41 commercial banks operating in Kenya. This study used secondary data, which was collected from published annual financial statements of the commercial banks. Data analysis was done using SPSS version 23.0 software. Data was analyzed using descriptive and inferential statistics obtained from panel linear regression analysis. The study findings showed that asset quality had a negative significant effect on performance of banks in Kenya. Insider lending, loan growth rate and provision for loan loss did not have significant effect on financial performance of commercial bank’s in Kenya. The study recommended that credit risk managers for banks should continually review policies on asset quality management especially monitoring and control as it has negative significant effect on financial performance of commercial banks. They should be less concerned with the other variables since they do not significantly affect their performances . The study recommends another research to be done using primary data.