Abstract
Purpose: Commercial banks in Kenya have put in place several credit policies and strategies to reduce non-performing loans. The capacity of a bank to grow its loan in the year is largely determined by its asset quality and efficiency. Regrettably, the measures put in place by many banks to improve asset quality and efficiency seem to bear little fruits particularly in tier IV commercial banks have been recording declining performance over the recent past. The aim of the study was to establish the influence of credit risk on financial performance of tier IV commercial banks in Kenya.
 Methodology: The study was guided by scientific theory of management, Transaction cost theory and Contingency theory. This study employed longitudinal research design. The target population was 13 tier IV commercial banks in Kenya as at 2022 from Central bank of Kenya website. A secondary data collection sheet assisted in tabulating secondary data from audited financial statements which were downloaded from the Central Bank of Kenya website. Panel Data analysis technique was employed to establish the relationships through STATA.
 Findings: Pearson’s product moment correlation coefficient depicted r = -0.4306, p-value of 0.0000 which is significant for credit risk. The regression model had a p-value of 0.0000, indicating that it was significant and reliable. An R2 of 0.3799 was produced by the random effect model indicating that financial imperative contributes 37.99% to financial performance of tier IV commercial banks. The regression coefficients were -0.13 with a p-value 0.004< 0.05), credit risk (CR) and financial performance (ROE) at 5% level of significance. These results indicate that credit risk had significant influence on financial performance.
 Recommendation: It was recommended that commercial banks should properly manage credit risk; prompt recovery of loans is also recommended to reduce loan impairment charges.
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