DEBT MANAGEMENT AND LOAN PERFORMANCE OF COMMERCIAL BANKS IN KENYA
DEBT MANAGEMENT AND LOAN PERFORMANCE OF COMMERCIAL BANKS IN KENYA
Mercy Akinyi Owich - Masters Student, Department of Business Administration, Kenyatta University, Kenya
Dr. Vincent Shiundu Mutswenje - Department of Business Administration, Kenyatta University, Kenya
ABSTRACT
This analysis examined debt management and performance of loan of the commercial banks in Kenya. The analysis anchored on the fact that loan performance linked to economic performance. Economies tend to be unstable especially in financial crises when non-performing loans increase. The key objective of the study was to evaluate the effect of debt management on loan performance of commercial banks. The specific objectives of the study included, establishing the effect of credit risk assessment on performance of commercial banks’ loans, to determine the significance of periodic loan review on loan performance of commercial banks in Kenya, to identify the extent to which loan collateral help to achieve loan performance of commercial banks in Kenya, and to evaluate how early warning signs of loan delinquency affect loan performance of commercial banks in Kenya. Most reviews have examined credit performance, commercial banks performance and many more but there has not been much research on debt management and loan performance of commercial banks in Kenya. The significance of the study was to answer the question of how debt management affects the performance of loans of commercial banks. The research anchored on debt management, information asymmetry and moral hazard theories. The research design applied was causal research design. The target population of the research project was 108 managers from banks in tier II, and tier III. The research embraced purposive sampling to come up with a sample size of 85 respondents. The data was collected using questionnaires. The data collected from the questionnaire was analyzed using IBM SPSS version 21.0 software. The findings were then classified, tabulated and summarized using figures. Therefore, the analysis identified that commercial banks loan performance aligns with the effectiveness of credit management practices evident in the banks. The credit management practices that entail character, capacity, capital, conditions, and collateral were less effective to loan performance than third party security. Periodic loan review tends to be effective in loan performance as determined in the study with a positive significance level as well as the extent of loan collateral presence on loan performance. The analysis recommended that the commercial banks and the government to evaluate and formulate policies that regulate exercises on credit risk management of loan delinquency.
