CREDIT RISK MANAGEMENT PRACTICES AND FINANCIAL PERFORMANCE OF LISTED AGRICULTURAL FIRMS LISTED AT NAIROBI SECURITIES EXCHANGE, KENYA

MURIGI RACHEL WAMBUI, LUCY WAMUGO

Abstract


Abstract: Agricultural companies have been faced with declining financial performance with even some being delisted from NSE over the last few years. Previously agricultural companies listed in the NSE were only dealing with cash auctions only. However, due to competition in the market, the agricultural companies have ventured into making sales on credit basis hence exposing them to credit risk. The main purpose of this study was to establish the effect of credit risk management practices on financial performance of Agricultural companies listed at the NSE. The specific objectives were to investigate the effect of credit appraisal, credit policy and credit monitoring on financial performance of Agricultural companies listed at the NSE. Descriptive research design was adopted. The population of the study was six agricultural companies listed at the NSE. This was a census study and hence the whole population was used. The study sued both primary and secondary data. A questionnaire was used in the collection of primary data while secondary data was obtained from financial statements of the agricultural firms. The collected data was analysed by use of descriptive statistics, through the help of Statistical Package for Social Sciences (SPSS version 22). The inferential statistics were obtained by regression analysis. The analysed data was presented by use of tables and charts. The study found out that credit appraisal has a significant effect on financial performances of Agricultural companies listed at the NSE. In addition, the study established that credit policy has a significant effect on financial performances of Agricultural companies listed at the NSE. Also, the study established that credit monitoring has a significant effect on financial performance of Agricultural companies listed at the NSE. This study therefore recommends that the management of agricultural companies need to implement policies on credit appraisal so as to improve on financial performance of Agricultural companies. The study concludes that improvement in credit appraisal among agricultural companies listed at the NSE would lead to an improvement in financial performance of agricultural companies listed at the NSE. The study also concludes that improvement in credit policy would lead to an improvement in financial performance of agricultural companies listed at the NSE. The study further concludes that improvement in credit monitoring would directly lead to improvement in financial performance of agricultural companies listed at the NSE. The study further recommends that the management of the agricultural companies should continuously monitor credit in order to improve their financial performance. Moreover, the study recommends that credit managers of agricultural companies should improve on their credit policy as a way of improving the financial performance because credit policies assist towards effective credit risk management resulting in higher returns.

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