Credit risk management and financial performance of commercial banks

Abstract

The study aims at establishing how credit risk management affects financial performance of commercial banks. It has the following objectives; to assess the relationship between assessment and financial performance of commercial banks, to assess the relationship between management and financial performance of commercial banks and assessing the relationship between monitoring and financial performance of commercial banks. The key study findings were; assessment and financial performance of commercial banks, management and financial performance of commercial banks and monitoring and financial performance of commercial banks. In pursuance of the above aim, the researcher employed a case study design using the quantitative study approach where questionnaires were used as primary tools using random sampling techniques and document review as a secondary tool for data collection which was analysed using descriptive analysis and results were presented in tables. The sample size of the study constituted of 45 respondents where the entire population was studied since the sample population was quite small. Findings indicate that the bank has a credit assessment criteria it employs and credit management policies to ensure effectiveness and efficiency. The bank also has a well-defined committee which manages its credit risk and a sound monitoring system which enables the bank to reduce on the risk exposure thus enabling the bank improve on its financial performance. In conclusion, loans were the basic assets for the bank which constituted their major sources of income thus contribute greatly to the growth of the bank and there exists a strong relationship between credit risk management and financial performance of commercial banks. On recommendations from the findings of the researcher, Centenary bank should strengthen their credit assessment and appraisal procedures, ensure that sound risk management policies are in place and continuous monitoring of borrowers is done to increase on the bank’s profitability and value for shareholders.