Risk Management and Level of Performance of Unsecured Loans in Commercial Banks in Nanyuki Town, Kenya
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Date
2018
Authors
Kariu, Joseph King’ori
Mungai, John
Journal Title
Journal ISSN
Volume Title
Publisher
International Academic Journals
Abstract
Banks have to manage more types of risks in
order to maximize the shareholders’ wealth.
Kenyan banks have witnessed increasing
non-performing loans. The liberalization of
interest rate controls, the privatization of
publicly owned banks, and the expansion on
the variety of financial instruments, provided
new business opportunities for banks but they
also increased the need for proper risk
management systems to be put in place in
order to control the risks and uncertainties
deriving from these changes. The gross nonperforming loans (NPLs) increased by 6.6
percent in the first quarter of 2017. The study
focused on the effect of risks management on
performance of unsecured loans in banks.
The objective of the study was to establish
the effect of information technology on
performance of unsecured loans. The study
was anchored in the information asymmetry
and technological determinism theories. The
study used a descriptive cross sectional
research design. Commercial banks in
Nanyuki town were targeted. Branch
managers and departmental heads were the
respondents in the study. The study used
purposive sampling where all 12 banks and
60 respondents were involved in the study. A
self-administered questionnaire was used to
collect data. Descriptive statistics such as
frequencies, percentages, mean and standard
deviation were used to organize findings.
Regression analysis was conducted to
determine the statistical significance of the
attempted prediction between risk
management and performance of loans
among commercial banks. The tests were
performed the help of SPSS software at 95%
confidence level. Findings were presented in
form of tables and figures. The study found
that that information technology was used in
risk management to a large extent.
Regression analysis showed that there was a
strong positive correlation (r=0.837) between
risk management and performance whereby
68.4% of performance of unsecured loans in
commercial banks in Nanyuki town, Kenya
could be attributed to risk management.
There was statistically significant
relationship (F(4,7) = 4.394, P=0.004)
between risk management and performance
of unsecured loans in commercial banks in
Nanyuki town, Kenya. Information
technology (p=0.044), was statistically
significant. The study concluded that risk
management is vital to performance of
unsecured loans in commercial banks. This
relationship is driven by utilization of
information technology which enable the
bank assesses and predict risk and therefore
employ corrective and mitigation strategies to
avoid default. The researcher recommended
that commercial banks should make greater
investments in information technology in risk
management especially in the area of data
mining.
Description
A research article published in International Academic Journal of Economics and Finance
Keywords
information technology, performance of loans, unsecured loan, risk management
Citation
Risk management and level of performance of unsecured loans in commercial banks in Nanyuki town, Kenya. International Academic Journal of Economics and Finance, 3(2), 370-384