The Impact of Credit Risk Management on Financial Performance of Commercial Banks in Kenya

Abstract

This study analysed the impact of credit risk management on the financial performance of commercial banks and also attempted to establish if there exists any relationship between the credit risk management determinants by use of CAMEL indicators and financial performance of commercial banks in Kenya. A causal research design was undertaken in this study and this was facilitated by the use of secondary data which was obtained from the Central Bank of Kenya publications on banking sector survey. The
study used multiple regression analysis in the analysis of data and the findings have been presented in the form of tables and regression equations. The study found out that there is a strong impact between the CAMEL components on the financial performance of commercial banks. The study also established that capital adequacy, asset quality,
management efficiency and liquidity had weak relationship with financial performance (ROE) whereas earnings had a strong relationship with financial performance. This study concludes that CAMEL model can be used as a proxy for credit risk management.
Key Words: Credit Risk, Management, Financial Performance, Commercial Banks, Kenya