Abstract:
Financial institutions have not formed a completely top-down system of credit risk management. The credit organizational structure is very unreasonable in most co-operative societies in Kenya. This has called for the need for credit risk management models to be strongly put in place. This study investigated the effect of credit risk management on profitability in savings and credit co-operative societies in Kenya. Profitability of the savings and credit co-operative societies has been declining in last five(5) years from the year 2012 to 2016. The specific objective of the study was to determine the effect of Asset Quality, Liquidity, capital adequacy and earning performance on profitability of savings and credit co-operative societies in Kenya. The study reviewed several literatures basing on the specific objectives and the researcher chose three theories: - Modern portfolio Theory, Credit risk theory and Agency theory to aid the study. The study used causal research design to determine the effect of the dependent variable when the independent variables were varied. The study was carried out in 112 deposit taking saving and credit cooperatives societies in Kenya which have been in existence for the previous 5 years from the year 2012 to the year 2016, registered and licensed by Sacco Societies Regulatory Authority. The study classified the population into status and took a sample of 10% from each stratum which gave a sample size of 11 savings and credit societies. Secondary data were collected and analyzed by use of both descriptive statistics which included frequency distribution, mean, standard deviation and inferential statistics which included adoption of correlation analysis, F-test and regression analysis. Data were presented in tables. The study found that that Asset quality using NPLs to Total Gross Loans led to increased return on asset for saccos. Loan Net of provisions to capital was also one of the measure of asset quality Saccos. The study found that liquidity was applied on return on investment of saccos as indicators of profitability. From core capital to total liabilities as one of capital adequacy in saccos. The study was a positive relationship between asset quality and profitability (returns on equity and return on asset). Both sort-term liabilities and deposits affected profitability positively. The study recommended that Asset quality using NPLs to Total Gross Loans should managed for saccos since it was one of Loan Net of provisions to capital was also one of the measure of asset quality Saccos.
