bank lending
International Journal of Business and Social Science
Vol. 4 No. 6; June 2013
Credit Risk Mitigation Strategies Adopted By Commercial Banks in Kenya
Moses Ochieng Gweyi
Assistant Lecturer
Department of Co-operative Studies
The Co-operative University College of Kenya
P.O. Box 24814-00502
Nairobi, Kenya
Abstract
The study’s overall objective was to investigate credit risk mitigation strategies adopted by 44 the commercial banks currently operating in Kenya. The study was descriptive in nature. The study opted for both primary and secondary forms of data. The secondary data was collected from the documentations obtainable from the banks and the primary data from various banks. The collected data was examined to make inferences through a series of operations. Data was analyzed using descriptive statistics involving percentages and charts. The study found out that the banks had policies and strategies that governed the loan lending. Though this existed most of the banks didn’t seem to efficiently implement the same. The banks assumed some of the economic factors which could affect their loan performance. The banks also concentrated highly on collateral as the main security for loans which at times made the banks assume other strategies of preventing risk.
Key words: Credit, Risk, Mitigation, Bank
1.0. Introduction
Ingham (2004) describes credit as the provision of resources such as granting a loan by one party to another party where the second party does not reimburse the first party immediately, thereby generating a debt, and instead arranges either to repay or return those resources or material(s) of equal value at a later date. According to
Henderson (2011), credit risk occurs when there is a loss in value as a result of a debtor 's non-payment of a loan or other line of credit, either the principal or interest (coupon) or both. The classical definition of risk was provided by Knight (1994) as the situation in which the decision
Vol. 4 No. 6; June 2013
Credit Risk Mitigation Strategies Adopted By Commercial Banks in Kenya
Moses Ochieng Gweyi
Assistant Lecturer
Department of Co-operative Studies
The Co-operative University College of Kenya
P.O. Box 24814-00502
Nairobi, Kenya
Abstract
The study’s overall objective was to investigate credit risk mitigation strategies adopted by 44 the commercial banks currently operating in Kenya. The study was descriptive in nature. The study opted for both primary and secondary forms of data. The secondary data was collected from the documentations obtainable from the banks and the primary data from various banks. The collected data was examined to make inferences through a series of operations. Data was analyzed using descriptive statistics involving percentages and charts. The study found out that the banks had policies and strategies that governed the loan lending. Though this existed most of the banks didn’t seem to efficiently implement the same. The banks assumed some of the economic factors which could affect their loan performance. The banks also concentrated highly on collateral as the main security for loans which at times made the banks assume other strategies of preventing risk.
Key words: Credit, Risk, Mitigation, Bank
1.0. Introduction
Ingham (2004) describes credit as the provision of resources such as granting a loan by one party to another party where the second party does not reimburse the first party immediately, thereby generating a debt, and instead arranges either to repay or return those resources or material(s) of equal value at a later date. According to
Henderson (2011), credit risk occurs when there is a loss in value as a result of a debtor 's non-payment of a loan or other line of credit, either the principal or interest (coupon) or both. The classical definition of risk was provided by Knight (1994) as the situation in which the decision
References: Bettis, R. A. (2009). Risk Consideration in Modeling Corporate Strategy. Academy of Management Proceedings. Bowman, E. H (2000). Risk Seeking by Troubled Firms, Sloan Management Review. Burns L. (2000). Methods in Research, London: Irwin Central Bank of Kenya (CBK) (2011), Banks Supervision Annual Report, Kenya. Henderson, T (2011). Counterparty Risk and the Sub-prime Fiasco. 2011-01-02. Ingham, L. C. (2002). An Introduction to Credit Risk Modeling. Chapman & Hall/CRC. ISBN 978-1584443265. Jappelli, B. (2006). Progress Analysis in Risk Management, Singapore, Mc Graw-Hill. Knight, J. C (1994). The Evaluation of Risk in Business Investment, Pergamon Press Ltd, London. Saunders, A. and Schumacher, L. (2000). The Determinants of Bank Interest Rate Margins: An International Study, Journal of International Money and Finance 19, 813-832.