Credit risk management models by commercial banks in Nairobi Kenya

Abstract

Credit risk management models include the systems, procedures and control which a company has in place to ensure the efficient collection of customer payments and minimize the risk of non-payment. The high level of non-performing loans is a challenge to many commercial banks in Kenya, which is evidence that commercial banks are faced by a big risk of their credit. Commercial banks are vital institutional framework for national development because they contribute about 50 percent of the Gross Domestic Product. Lending in commercial banks is the main source of making profit hence need for efficient credit risk management practices within the industry. With the objective of determining the credit risk management in the Kenya Commercial banks the study will establish the best strategies to adopt and how they are applied in assessing and evaluating credit risk to minimize non performing loans. It will also obtain information on problems of credit management in Kenya The research used a descriptive survey of the commercial banks in Kenya with a population of 48 commercial banks that were registered by CBK in 2007. Primary data was collected using a questionnaire from senior managers who have been in the industry for at least five years. The data was analyzed data and presented in frequencies and percentages, which was represented in tables, bar charts and pie charts. The study concluded that most banks are foreign and they have a credit policy that is reviewed frequently. Although the credit management is technical and consumes a lot of time the employees are trained regularly and manual used to create awareness. Different measures or models are employed in credit risk management like the quantitative method to checks the client’s ability to repay the loan as well as credit worthiness, terms of payment and interest to be charged, consequences in case of default, customers character, deposit and collateral. The researcher recommends that credit risk management should be implemented in the Kenyan commercial banks as its useful in helping reduce the risk that is involved while lending to the customers This policies associated with the credit risk management have been very helpful in recovering what might not be recovered through the collateral securities or high rates hence minimizing the possibilities of a bank to fail.