CREDIT RISK REGULATION AND FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA

Mercy Jerono Kipchoge, Lucy Wamugo

Abstract


Globally, commercial banks are vital financial intermediaries because they have the ability to offer different financial services needed for effective operation of the economy. Prudential regulations are issued by the Central Bank of Kenya with the purpose of ensuring a sound and stable financial system. Over last eight years, commercial banks have been facing poor financial performance as shown by declining profitability. The current study assessed the nexus between the credit risk regulation and Kenya commercial banks? performance. The study was anchored on the Market Power Theory and Agency Theory. The study used an explanatory research design and the target population was all the 42 commercial banks. Census approach was used during the research. Additionally, secondary data was then obtained from Audited commercial banks? financial statements and from Central Bank of Kenya for 6 years between 2013 and 2018. Panel data was utilized and was then analysed using panel regression and descriptive analysis. Moreover, the study adhered to the research Ethical considerations.The study revealed that credit risk regulations influenced commercial banks? financial performance significantly and inversely. To this effect, Credit risk regulations measured by Non-performing loans as a percentage of total loans ought to be increased further by the central bank to ensure higher loan repayments rates as this will further improve the commercial banks? performance

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References


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