The impact of credit risk management on the financial performance of Banks in Kenya for the period 2000 – 2006

Danson Musyoki, Adano Salad Kadubo

Abstract

The objective of study was to assess various parameters pertinent to credit risk management as it affects banks’ financial performance. Such parameters covered in the study were; default rate, bad debts costs and cost per loan asset. Financial reports of 10 banks was used to analyze profit ability ratio for seven years (2000-2006) comparing the profitability ratio to default rate, cost of debt collection an cost per loan asset which was presented in descriptive, regression and correlation was used to analyze the data. The study revealed that all these parameters have an inverse impact on banks’ financial performance, however the default rate is the most predictor of bank financial performance vis-à-vis the other indicators of credit risk management. The recommendation is to advice banks to design and formulate strategies that will not only minimize the exposure of the banks to credit risk but will enhance profitability and competitiveness of the banks.

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