Effect of Credit Management on Financial Performance of Commercial Banks in Eldoret, Kenya

Abstract

Purpose: The main aim of the current study was to find out the effect of credit management on financial performance of commercial banks in Eldoret, Kenya. The study specifically focused on finding out the effects of credit terms, credit standards and collection policy on financial performance of commercial banks operating in Eldoret. The study was guided by both Asymmetric Information Theory, Credit Scoring Theory and Theory of Performance.
 Methodology: A descriptive survey design was employed in the study with the target population comprising of 30 licensed commercial banks operating in Eldoret. The unit of observation comprised all branch managers and credit officers from each commercial bank making a total of 177 respondents. A census approach was employed where all the units of observation were included in the study. Both primary and secondary data was utilized in the study where questionnaires collected primary data whereas a secondary data collection sheet was utilized to gather secondary data from printed sources. The data collected was analyzed through both descriptive and inferential statistics. In the study, the descriptive statistics comprised of means, average and standard deviation whereas the inferential statistics comprised of regression correlation analysis. Both MS Excel and SPSS Software v25 was utilized to generate the statistics. The results of the study were presented in form of tables and figures.
 Findings: The study established that credit terms, credit standards and collection policy affects financial performance of commercial banks in Eldoret to a positive and significant level. This depicted by beta values of 0.336, 0.404 and 0.304 and significance values of 0.000, 0.000 and 0.003 respectively.
 Unique contribution to theory, practice and policy: The results have the implications that the levels of financial performance of the commercial banks increases with the respective beta values following a unit increase in any of the independent variables. The study provided recommendations to the management of commercial banks operating in Eldoret to enhance the levels of practices surrounding credit terms, credit standards and collection policy since the practices translates into improved financial performance.