Credit Risk and Financial Performance of Fully Fledged Islamic Banks in Kenya
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Date
2023
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International Journal of Managerial Studies and Research
Abstract
Islamic banks must carefully analyze the loans granted in order for them to get back the loans as per the agreements. The aim of this study was to assess how credit risk affects financial performance of Islamic Banks in Kenya. The agency theory and the modern portfolio theory guided the inquiry. Descriptive research design was embraced targeting 3 commercial banks offering Islamic products in Kenya and census was used. Secondary cross sectional quarterly data on particularly loan loss provisions and total loans was collected although other associated data on total liquid assets, total deposits, loan loss provisions, total loans, exchange rates fluctuation, total employee expenses, number of employees and net income was collected for the period 2017 all through to 2021 to help augment the results. Three regression models were used to estimate the link between Islamic banking risk, bank size and financial performance. It emerged that credit risk (r=0.463, β= -0.249, p<0.05), significantly affect financial performance of Islamic banks in Kenya. It was recommend that the credit managers of the Islamic banks in Kenya should review the existing credit risk management framework and mechanisms to manage the increasing trend in NPLs.
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Citation
Ibrahim, S.A., Gatauwa, J. & Abdul, F. (2023). Credit Risk and Financial Performance of Fully Fledged Islamic Bankss in Kenya. International Journal of Managerial Studies and Research.