The effect of 7cs credit appraisal model on the level of Non-performing advances of commercial banks in Kenya

Abstract

Banks play a significant role in the economic growth and development of any country. They are the main stimulus of economic growth. However, they face several challenges. The main one being, disbursement of funds in quality assets (loans and advances). This study is geared towards ascertaining the following objectives: whether, banks use the 7Cs credit appraisal model and the impact/effect of the use of this model on the level of non performing loans of commercial banks of Kenya. The study was conducted through a survey on the 43 commercial banks registered and operating in Kenya. The study covered the entire banking industry in Kenya hence no sampling was required. Data was collected using a semi-structured questionnaire administered to bank managers. The data collected was analyzed by ratios, inferential and quantitative statistics.SPSS version 17 was used in capturing and building the data and thereafter analyzed through the use of factor analysis. The findings of the study was that; commercial banks in Kenya use the 7Cs credit appraisal model in credit risk,evaluation,assesement and appraisal processes .To remain formidable in business, commercial banks should use the 7Cs credit appraisal model considering that, credit risk is the major risk that banks attach a lot of importance to. It should be noted that most bank failures worldwide have been attributed to poor credit policies they have employed in their businesses. Commercial banks in Kenya use the 7Cs credit appraisal model in credit risk assessment, evaluation and appraisal processes and the use of the 7Cs credit appraisal model has enabled them to reduce the level of non performing loans. Capacity was found to be the most significant of all the credit appraisal variables followed by character, condition, common sense and control in that order.