Abstract:
The purpose of this study was to establish the effect of credit management practices on financial performance of commercial banks in Kisii County, Kenya. The specific objectives of the study were: to determine the effect of credit evaluation on financial performance of commercial banks in Kisii county, Kenya; establish the influence of Credit appraisal on financial performance of commercial banks in Kisii county, Kenya; Examine the effect of loan supervision on financial performance of commercial banks in Kisii county, Kenya and determine the influence of credit monitoring on financial performance of commercial banks in Kisii County, Kenya. The study was anchored on adverse Selection theory, Modern Portfolio theory. Descriptive research design was adopted. The study targeted 122 respondents who were commercial bank employees from the 15 commercial banks in Kisii County and this formed the unit of analysis from bank managers and credit officers. The sample size was 102 respondents. The study used primary data collection through closed ended questionnaire. A pilot test was done with 10 respondents who represent 10% of the sample size. The study adopted descriptive statistics (means, standard deviation) by use of SPSS. Inferential statistical analysis was done using multiple regressions and correlation analysis. The study found out that credit evaluation had an inverse and significant effect on financial performance of commercial banks in Kisii (B=-.223, t=-4.571, p=.006<.05). Further the study found out that credit appraisal had a statistically insignificant direct effects on financial performance of commercial banks in Kisii B=.040, t= 1.177 P=.292>.05). This indicated that credit appraisal led to an insignificant but direct impact on financial performance of commercial banks in Kisii. The study concluded that loan supervision had positive but weak relationship with financial performance of commercial banks in Kisii. Further, the study concluded that loan supervision had a statistically significant effects on financial performance of commercial banks in Kisii. The study recommended that commercial banks should put in place proper credit risk assessment tools to accurately assess risks. This would reduce the losses they make as result of poor risk assessment. The study recommended that commercial banks should put in place stringent collection policies for effective loans repayments to reduce chances of default. The study further recommended that banks should conduct frequent reviews of loan utilization. This would ensure loans are invested into profitable projects where they can generate steady income to service themselves. Further, the study recommended that banks should reduce credit monitoring since it reduced financial performance of commercial banks in Kisii insignificantly.
