The effect of credit risk on the financial distress of listed commercial banks on the Nairobi securities exchange

Abstract

The objective of this study was to establish the effects of credit risk on financial distress of listed commercial banks at the Nairobi Securities Exchange. The research conducted was a study for all listed commercial banks at the NSE by December 2014. Data was obtained from financial statements of the listed commercial banks as collected for the years 2010-2014. Descriptive research design was used where data was analyzed by the use of SPSS. This was achieved by looking at the effect of credit risk, bank size, and operating efficiency on the computed Z-Score value of listed commercial banks in Kenya. The study concludes that while bank size and operating costs efficiency have a significant relationship with the financial distress, there was no significant relationship between financial distress and credit risk of listed commercial banks in Kenya. The recommendation from the findings of the study suggests that all listed commercial banks in Kenya should implement mechanisms to efficiently increase their asset base, while continuously maintain sustainable operating expenses. The study suggests that more independent variables to be added in the regression model to help improve the results of the study.