EVALUATION OF THE EFFECT OF CREDIT EVALUATION ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KISII COUNTY, KENYA
EVALUATION OF THE EFFECT OF CREDIT EVALUATION ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KISII COUNTY, KENYA
Nahshon Borura Ongeri - School of Business and Economics, Kisii University, Kenya
Dr Andrew Nyangau PhD - School of Business and Economics, Kisii University, Kenya
Dr Yobes Nyaboga PhD - School of Business and Economics, Kisii University, Kenya
ABSTRACT
The purpose of this study was to establish the effect of credit evaluation on financial performance of commercial banks in Kisii County, Kenya. The study was anchored on adverse Selection theory, Modern Portfolio theory, Transaction Cost theory, and Moral Hazard Theory. Descriptive research design was adopted. The study targeted 122 respondents who were commercial bank employees from the 15 commercial banks in Kisii County and this formed the unit of analysis from bank managers and credit officers. The study sample size was 92 respondents. The study used primary data collection through closed ended questionnaire. A pilot test was done with 9 respondents who represent 10% of the sample size. The study adopted descriptive statistics (means, standard deviations) and Inferential statistical analysis (multiple regressions and correlation analysis) to analyze data. The study found out that Loan supervision had a statistically significant effects on financial performance of commercial banks in Kisii. r= .154, t=3.386 P=.020<05.This indicated that Loan supervision led to significant direct impact on financial performance of commercial banks in Kisii. The null hypothesis was rejected .The study concluded that loan supervision had positive and correlation with financial performance of commercial banks in Kisii. Further, the study concluded that loan supervision had a statistically significant effects on financial performance of commercial banks in Kisii. The study recommended that commercial banks should put in place proper credit risk assessment tools to accurately assess risks. This would reduce the losses they make as result of poor risk assessment. The study further recommended that commercial banks should put in place stringent collection policies for effective loans repayments to reduce chances of default. The study further recommended that banks should conducted frequent reviews of loan utilization. This would ensure loans are invested into profitable projects where they can generate steady income to service themselves Further, the study recommended that banks should reduce credit monitoring since it reduced financial performance of commercial banks in Kisii insignificantly.
