Firoz
International Journal of Business and Public Management (ISSN: 2223-6244) Vol. 2(2): 72-80 Available online at: http//:www.journals.mku.ac.ke © MKU Journals, April 2012
Full Length Research Paper
The impact of credit risk management on the financial performance of Banks in Kenya for the period 2000 – 2006
Danson Musyoki1, Adano Salad Kadubo2 Catholic University of Eastern Africa P.O. Box 00200 – 62157 Nairobi 2 Catholic University of Eastern Africa P.O. Box 00200 – 62157 Nairobi
1
Corresponding Author: Danson Musyoki Recieved: August 8, 2011 Accepted: September 7, 2011
Abstract The objective of study was to assess various parameters pertinent to credit risk management as it affects banks’ financial performance. Such parameters covered in the study were; default rate, bad debts costs and cost per loan asset. Financial reports of 10 banks was used to analyze profit ability ratio for seven years (2000-2006) comparing the profitability ratio to default rate, cost of debt collection an cost per loan asset which was presented in descriptive, regression and correlation was used to analyze the data. The study revealed that all these parameters have an inverse impact on banks’ financial performance, however the default rate is the most predictor of bank financial performance vis-à-vis the other indicators of credit risk management. The recommendation is to advice banks to design and formulate strategies that will not only minimize the exposure of the banks to credit risk but will enhance profitability and competitiveness of the banks. Keywords: Return on assets, Cost per loans, Default rate, Bad debts cost JEL Classification: G0
INTRODUCTION Financial performance is company’s ability to generate new resources, from day- to- day operations, over a given period of time; performance is gauged by net income and cash from operations. A portfolio is a collection of investments held by an institution or a private individual (Apps, 1996).Risk management is the
Full Length Research Paper
The impact of credit risk management on the financial performance of Banks in Kenya for the period 2000 – 2006
Danson Musyoki1, Adano Salad Kadubo2 Catholic University of Eastern Africa P.O. Box 00200 – 62157 Nairobi 2 Catholic University of Eastern Africa P.O. Box 00200 – 62157 Nairobi
1
Corresponding Author: Danson Musyoki Recieved: August 8, 2011 Accepted: September 7, 2011
Abstract The objective of study was to assess various parameters pertinent to credit risk management as it affects banks’ financial performance. Such parameters covered in the study were; default rate, bad debts costs and cost per loan asset. Financial reports of 10 banks was used to analyze profit ability ratio for seven years (2000-2006) comparing the profitability ratio to default rate, cost of debt collection an cost per loan asset which was presented in descriptive, regression and correlation was used to analyze the data. The study revealed that all these parameters have an inverse impact on banks’ financial performance, however the default rate is the most predictor of bank financial performance vis-à-vis the other indicators of credit risk management. The recommendation is to advice banks to design and formulate strategies that will not only minimize the exposure of the banks to credit risk but will enhance profitability and competitiveness of the banks. Keywords: Return on assets, Cost per loans, Default rate, Bad debts cost JEL Classification: G0
INTRODUCTION Financial performance is company’s ability to generate new resources, from day- to- day operations, over a given period of time; performance is gauged by net income and cash from operations. A portfolio is a collection of investments held by an institution or a private individual (Apps, 1996).Risk management is the
References: 75 International Journal of Business and Public Management (ISSN: 2223-6244) Vol International Journal of Business and Public Management (ISSN: 2223-6244) Vol. 2(2): 72-80 Default Rate -.095 Bad Debt Cost -.015 Cost per loan -.007 Asset Dependent Variables: Return On Assets