Credit Risk Management Process and Financial Performance of Commercial Banks in Kenya: A Case Study of Selected Commercial Banks in Kisii County
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Date
2024-05
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Kenyatta University
Abstract
The success of a lending firm is mainly determined by the financial performance in place, governance, professionalism and procedures. Especially to lenders, the minimizatio of bad loans is benefitial to the entire parties in the loan process. Commercial banks adopt different credit risk management process on financial performance majorly determined by credit scoring systems, banks’ ownership of credit policies, caliber of management and banks regulatory environment. Based on the report of the Central Bank of Kenya, there has been a declining performance Kenya’s banks between 2012 and 2016. The declining perfomance has been attributed to credit risk managemnet ineffectiveness in Kenya. Prescriptive initiatives have been placed in position, like guaranteeing that bad loans financing are adequately prepared for, and the least restrictions laid for capital requirements and liquidity appropriateness are adhered to, and yet profit growth has remained low. The research inquired towards ascertaining effects of risk management processes upon Kisii County commercialized banking establishments branches financial performance. Specifically, research intended towards instituting the effects of credit risk identification, risk, risk monitoring, risk evaluation and risk mitigation measures on financial performance. The investigation was centered on equity theory, assimilation theory, contrast theory and portfolio theory. Kisii Town was the area which the study was conducted. With 111 as the population of the employees as the target from 11 commercial banks, 91 sampled workers was utilized. Descriptive survey layout was employed. Findings shows that Risk Identification, Risk Analysis, Risk Evaluation, Risk Monitoring and Risk Mitigation have positive and significant effect on financial performance. The study concludes that the organizations can proactively develop strategies to mitigate them, thereby minimizing the negative impact on their financial performance by identifying potential risks. Risk analysis can help companies make more informed decisions when it comes to investments, budgeting, and resource allocation. The organizations can proactively identify and mitigate any threats that may impact their financial stability by closely monitoring and assessing potential risks. The banks can proactively mitigate these risks and make informed decisions to protect their financial health by identifying and evaluating potential risks that could impact the company's bottom line by identifying and evaluating potential risks that could impact the company's bottom line. The banks can protect their assets, reduce losses, and increase profitability by identifying potential risks and implementing strategies to minimize or eliminate them. The study recommends that the banks should implement advanced data analytics and machine learning techniques. The commercial banks should integrate macroeconomic factors by enhancing risk assessment methods involves considering macroeconomic factors that can impact a bank's financial performance. The commercial banks can adopt advanced risk assessment techniques, such as stress testing and scenario analysis, to evaluate the potential impact of various risk factors on their financial performance. Commercial banks can enhance their risk management strategies by implementing a comprehensive framework that includes identifying, assessing, monitoring, and mitigating risks.
Description
A Research Project Submitted to the School of Business in Partial Fulfilment of the Requirements for the Degree of Master of Business Administration (Finance Option) of Kenyatta University, May 2024.
Supervisor
Vincent Shiundu