Abstract
Commercial banks in Kenya as per the World Bank report recorded higher non-performance in loans than the standard globally in spite of Kenya having the most stable and developed banking system in East and Central Africa region. Commercial banks non-performing loans for five years from 2015 to 2018 averaged eleven percent which was higher than the recommended rate of one percent. In Kenya, commercial banks’ non-performing loans remain higher than the recommended rate which could be due to inadequate credit management practices. The study therefore aimed at examining the moderating role of the central bank regulations on the relationship between credit management practices and loan performance. The underpinning theory of the study was the credit risk theory. The study used explanatory research design and the research philosophy adopted was positivism. The target population was 44 commercial banks in Kenya and a census approach was used. Both primary and secondary data were used. Primary data was collected through structured questionnaires and related to credit management practices while secondary data was obtained from review of existing bank loan records in relation to loan amount advanced and non-performing loans for a period of four years from 2015-2018. Multiple regression analysis was used to test the study hypothesis. The study found out that Central Bank Regulations had no significant moderating effect on the relationship that exists between credit management practices and loan performance. Therefore, the study concluded that the moderating role of central bank regulations could not be confirmed. The study recommended that the central bank of Kenya to continuously assess and update credit management practices and the central bank regulations. The Government through regulating bodies should thus establish credit policies that regulate traditional and emerging credit practices among financial institutions.
Highlights
Loan performance constitutes a huge proportion of the credit risk of a bank as it accounts for more than 10 times of the equity (Barth et al, 2001)
Loan nonperformance continues to be a major challenge to commercial banks in Kenya, this study focused on the effect of credit management practices on loan performance of commercial banks in Kenya
Central bank regulations and the interaction terms between debt collection policy, client appraisal, lending policy and Central bank regulations were regressed against loan performance
Summary
Loan performance constitutes a huge proportion of the credit risk of a bank as it accounts for more than 10 times of the equity (Barth et al, 2001). Central bank of Kenya in 2005 issued guidelines where banks were required to have debt collection policies procedures which included collection enforcements, guarantor payments and continuous monitoring and control of loans (CBK, 2015). Credit management guidelines were issued in 2005 where commercial banks were required to have client appraisal policy (CBK, 2005). Following the collapse of numerous commercial banks out of inadequate credit risk management, in 2016, CBK issued further guidelines on lending policy and classification of non-performing loans (Central Bank of Kenya, 2016). Commercial banks in Kenya are required by CBK to submit audited annual reports, which include their financial performance and in addition disclose various financial risks in the reports including liquidity risk, credit risk as well as management of credit risk
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
