Abstract:
Loan policies and procedures are designed to guide lending and ensure prudent lending operations. The purpose of this study was to examine the Loan policy and its influence on financial performance of Commercial Banks in Eldoret town. To achieve this the study sought to find out the effects of liquidity management on financial performance of commercial banks in Eldoret town, to investigate the influence capital adequacy requirements as a determinant financial performance of commercial banks in Eldoret town, to determine the influence of Management policies on financial performance of commercial banks in Eldoret town, to determine extent to shares savings and deposits affect financial performance of commercial banks in Eldoret town. The study was guided by the two theories that is transactions cost theory and asymmetric information theory. The target population was 156 respondents drawn from the various banks and comprises of branch managers and credit officers. To get a representative sample, the study used purposive sampling method to sample branch managers of the commercial banks licensed by central bank of Kenya and for the case of selecting credit officers the study used simple random sampling technique. Data was collected using questionnaires and analyzed using descriptive and inferential statistics. The study concluded that the regression weights of all of the independent variables were significant with liquidity management p=0.036, capital adequacy p=0.40, Management policies p=0.002 and shares savings and deposits p=0.000. Thus all the variables of the study, liquidity management, capital adequacy, Management policies and shares savings and deposits are predictor variables for financial performance of commercial banks. The study recommends that Commercial banks ought to focus its attention on capability building and special training of bank managers and employees ,they should continuously review their credit policies and establish lost loan provision policies, Further commercial banks should properly address loan policy challenges; lastly commercial banks should ensure transparency and efficiency of its internal processes of management coupled with the protection and enforceability of the rights of the stakeholders. The study suggests that further study should be undertaken in order to investigate the determinants of loan performance in commercial banks in Kenya. Findings from such s study will provide more insight on the relationship between the loan performance, which could be useful in informing risk management strategies and policy in Kenyan commercial banks.
