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Geoffrey Obae - Department of Accounting, and Finance, Kenyatta University, Kenya

Dr. Ambrose Jagongo - Department of Accounting, and Finance, Kenyatta University, Kenya


Commercial banks operating in Kenya have been reporting dismal performance, with escalating amounts of non-performing loans between 2018 and 2020 as evidenced in the central bank’s reports. The non-performing loans of these banks were averaged at 11 percent, a rate higher than the central bank’s recommended rate of 1 percent, probably associated with insufficient credit management practices. The current analysis sought to determine credit management practices’ effects on commercial banks’ loan performance in the country. It specifically examined the objectives of the effect of credit rationing and client appraisal, on the loan performance of commercial banks in Kenya. The appropriate research design was descriptive survey applied to the targeted 38 commercial banks in the country. Questionnaire instrument assisted in collecting primary data on credit management practices while secondary information on loan performance was obtained from document review form based on loan records of 2018-2020. SPSS (v-21) aided the descriptive as well as inferential analyses of data. The findings of the regression analysis showed that the predictions in the model provide a positive correlation (R = 0.759) with loan performance. The coefficient of determination (r2) was 0.5761. The predictors of credit rationing and client appraisal were all significant as an increase in unit on credit rationing could lead to an increase in loan performance by 0.356. In addition, a unit increase in the client appraisal could lead to an increase in loan performance by 0.408. Further the results indicated that at 95 percent confidence level, credit rationing (p-value = 0.001) and client appraisal (p = 0.001) were significantly found in the regression model. The study concluded that debt collection has a significant impact on performance of loans, which is better to collect debt as the shorter debt collection period would lead to improved performance of commercial bank loans. The assessment also concluded that client appraisal has a significant effect on credit performance of the banking sector, implying the development of client appraisal would improve the performance of loans in the banking sector. Hence, the analysis concluded that commercial banks' loan performance was largely linked to efficiency in credit management practices adopted by the financial institutions. Based on the assessment findings, the study recommended that credit management practices should be adopted and applied equally by all commercial banks in Kenya to reduce the amount of non-performing loans in the banking sector.

Full Length Research (PDF Format)