Abstract
The first specific objective was to determine the relationship between credit risk management and financial performance of commercial banks in Kenya. The second specific objective was to determine the effect of interest rate regulation on the relationship between loan lending policies and financial performance of commercial banks in Kenya. The study used descriptive research design and the research philosophy used was positivism. The study adopted a census survey and purposive sampling method targeting 43 bank managers, 43 credit managers and 43 operations managers of the 43 commercial banks in Kenya for period 2013 to 2018. Document analysis guide was used to collect secondary quantitative data for period 2013 to 2018 from the commercial bank’s financial reports and questionnaires were used to collect primary data. The questionnaires which were administered to the respondents were structured. Content validity was used to determine the validity of the instruments. Data was analyzed using multiple linear regression method. The findings of the study revealed that loan lending policies; credit risk management measured by (non-performing loans and debt collection costs) have a significant and negative impact on ROA of commercial banks in Kenya. The study findings revealed that there exists a relationship between interest rate regulation, loan lending policies and financial performance of commercial banks. The study recommended that commercial banks should strengthen its loan lending procedures, use the services of Credit Reference Bureau, train credit officers on how to scrutinize customers and give out loans which have collateral security only. Keywords : Loan lending policies, interest rate regulation, credit risk, non-performing loans financial performance, commercial banks DOI: 10.7176/RJFA/12-4-05 Publication date: February 28 th 2021
Highlights
Lending by commercial banks has become a major function of the commercial banks because of its direct effect on the economic growth of a country, business development and financial performance of commercial banks
Inferential statistics was analyzed using multiple linear regression analysis model to test the statistical significance of the various independent variables loan lending policies on the dependent variables of financial performance of commercial banks (Return on assets) together with moderating variable (Interest rate regulation) and the results was displayed on tables
5.3 Conclusion The main objective of the study was to determine the effect of interest rate regulation on the relationship between loan lending policies and financial performance of commercial banks in Kenya
Summary
Lending by commercial banks has become a major function of the commercial banks because of its direct effect on the economic growth of a country, business development and financial performance of commercial banks. The lending function is considered as the most important function of any commercial bank since most of the bank’s earnings are generated from interest income. Bank lending if not properly assessed, involves the risks that the bank shareholders may not realize any income, benefits such as return on assets, return on equity. Lending is a risky business in that repayment of the loan is not always guaranteed and most of the times depend on other factors not in the control of the borrower affecting return on assets. Every commercial bank’s interest is to look for different techniques that will reduce the overall credit risk as much as possible and still be able to get profit from lending businesses (Akoth 2106)
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