Credit Risk Management in Commercial Banks

Topics: Risk management, Bank / Pages: 15 (3740 words) / Published: Sep 3rd, 2013




Financial and non-financial organizations have financial disasters which point to the need for various forms of risk management practices. Banks and other financial institutions have faced difficulties over the years for a number of reasons. However, the major cause of serious banking problems continues to be directly related to lax credit standards for borrowers and counterparties, poor portfolio risk management, or lack of a watchful eye to the changes in economic or other circumstances that can lead to deterioration in the credit standing of a bank’s counterparties. This paper aims at highlighting the factors influencing credit risk management practices among commercial banks in Kenya. This is an empirical review of studies carried out related to the objectives of this paper. In pursuit of developing this paper the following critical factors that influence credit risk management practices by banks are reviewed: effectiveness of credit risk management practices put in place by commercial banks in Kenya in controlling the level of credit risk exposure, the factors that determine credit risk management practices put in place to mitigate credit risk exposure; the effectiveness of each of these factors in controlling the level of credit risk exposure; and lastly the impact of credit appraisal process enforced on the organization’s growth and profitability and lastly it intends to conclude by bringing to light the barriers to effective credit risk management practices among commercial banks in Kenya.

Abstract ii
1.0 Background of the study 4
2.0 The problem statement 7
3.0 Literature review 8
4.0 Conclusion 15
5.0 Recommendations 16
6.0 References 17

1.0 Background of the study
The concept of a “credit crunch” has a long history reaching as far back as the Great Depression of the 1930s.

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