Debt Management Practices and Loan Performance of Commercial Banks in Kenya
Owich, Mercy Akinyi
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This analysis examined debt management practices and performance of loan of the commercial banks in Kenya. The analysis anchored on the fact that loan performance linked to economic performance. Economies tend to be unstable especially in financial crises when non-performing loans increase. For instance, the non-performing loan rates after applying the debt management techniques entails 5.46%, 5.99%, 8.59%, 9.95%, and 11.69% for 2015-2019 respectively. The key objective of the study was to evaluate the effect of debt management practices on loan performance of commercial banks in Kenya. The specific objectives of the study included, establishing the effect of credit risk assessment on loan performance of commercial banks, to determine the effect of periodic loan review on loan performance of commercial banks in Kenya, to evaluate the effect of loan collateral on loan performance of commercial banks in Kenya, and to determine the effect of early warning signs of loan delinquency on loan performance of commercial banks in Kenya. Most reviews have examined credit performance, commercial banks performance and many more but there has not been much research on debt management practices and loan performance of commercial banks in Kenya. The period scope of the study was 2015-2019. The research anchored on debt management, information asymmetry and moral hazard theories. The research design applied was causal research design. The target population of the research project was 108 managers from banks in tier II and tier III. The research embraced purposive sampling to come up with a sample size of 85 respondents. The data was collected using questionnaires. The data collected from the questionnaire was analyzed using IBM SPSS version 21.0 software. The findings were then classified, tabulated and summarized using figures. Therefore, the analysis identified that commercial banks loan performance aligns with the effectiveness of credit management practices evident in the banks. The credit management practices that entail character, capacity, capital, conditions, and collateral were less effective to loan performance than third party security. Periodic loan review tends to be effective in loan performance as determined in the study with a positive significance level as well as the extent of loan collateral presence on loan performance. The analysis recommended that the commercial banks and the government to evaluate and formulate policies that regulate exercises on credit risk management of loan delinquency.