Abstract
The study was meant to establish the relationship between credit risk management and financial performance of Bank of Africa (U) Ltd. The study adopted a case study approach and adopted both quantitative and qualitative approaches. The study established that the Bank has tried to diversify geographically not only within the country even though the majority of loans are granted to different regions within the country but also into neighboring countries like Tanzania. The bank has over 35 branches within the country among which 21 branches are in the central and 14 branches up country. Strong Credit Appraisal puts the milestones for an effective management of credit risk and gives the firms a competitive advantage in the market place. Hence it can be concluded that credit appraisal defines a bank’s survival and profitability. The value of adjusted R Square was 0.978, an indication that there was a variation of 97.8% on performance of the bank due to changes in client appraisal, credit risk control, and risk diversification at 95% confidence interval. The study recommends that the management of the Bank should continuously assess their risk management practices to see if they are still practical in the face of a continuously changing operating environment, for instance the new regulatory regimes. The products should be tailored towards the local language for easy understanding of the products. The study makes the original contribution by suggesting that there is a positive relationship between credit risk management and performance of the bank. These insights are useful for academic understanding and policy formulation by the decision makers of the bank.
Highlights
Today world over, Commercial Banks are the largest financial institutions with branches and subsidiaries throughout everyone’s life
Imposing loan size limits is a viable strategy in credit risk management as shown by a mean of 3.69 and standard deviation of 1.256
The findings revealed that the bulk of the profits of commercial bank are not influenced by the amount of credit and non-performing loans, suggesting that other variables other than credit
Summary
Commercial Banks are the largest financial institutions with branches and subsidiaries throughout everyone’s life. There are plenty of differentiations between types of banks. Much of this differentiation rests in the products and services that banks offer (Singh [1]). Commercial Banks are the major financial intermediaries in any economy and they are the major providers of credits to the household and corporate sector and operate the payment mechanism. They deal with both retail and corporate customers, have well diversified deposit and lending book and generally offer a full range of financial services (Aduda [2]). Anderson 2012 [3] argues that Banks should take into consideration the relationship between credit, liquidity, and interest rate risks
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