Influence of Credit Risk Measurement on Lending Performance of Commercial Banks in Nairobi County, Kenya

Abstract

The credit risk measurement has affected significantly the lending performance of the commercial banks not only in Kenya but also in east Africa and has led to financial crises and poor lending performance. There has been a dramatic loss in the banking industry and suddenly announced large losses due to credit exposures that turned sour. The general objective of this study was to evaluate the influence of credit risk measurement on the lending performance of commercial banks in Nairobi County, Kenya. This study used descriptive survey research design and the target population for this study was at two levels. The target population was employees of the 42 commercial banks in operation in Kenya and the sample consisted of credit managers and other bankers where purposive sampling was used to pick 42 credit managers and simple random sampling was used to select the other 301 respondents. Data was collected using questionnaires and analyzed using descriptive statistics and logistic regression analysis (binary) was used. The results of the study revealed that credit risks measurements influenced bank lending performance positively. The study concluded that credit risk measurement activities significantly influence the lending performance of commercial banks and as a result the operating capital of commercial banks have gone down. The study recommended that Kenya government through the National Treasury and in collaboration with CBK and KBA should develop policies that will help the commercial banks optimize of credit risks measurement and improve the lending performance which is currently affected to great extent.