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Date
2021-10
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Abstract
This analysis examined debt management practices and performance of loan of the commercial
banks in Kenya. The analysis anchored on the fact that loan performance linked to economic
performance. Economies tend to be unstable especially in financial crises when non-performing
loans increase. For instance, the non-performing loan rates after applying the debt management
techniques entails 5.46%, 5.99%, 8.59%, 9.95%, and 11.69% for 2015-2019 respectively. The key
objective of the study was to evaluate the effect of debt management practices on loan performance
of commercial banks in Kenya. The specific objectives of the study included, establishing the
effect of credit risk assessment on loan performance of commercial banks, to determine the effect
of periodic loan review on loan performance of commercial banks in Kenya, to evaluate the effect
of loan collateral on loan performance of commercial banks in Kenya, and to determine the effect
of early warning signs of loan delinquency on loan performance of commercial banks in Kenya.
Most reviews have examined credit performance, commercial banks performance and many more
but there has not been much research on debt management practices and loan performance of
commercial banks in Kenya. The period scope of the study was 2015-2019. The research anchored
on debt management, information asymmetry and moral hazard theories. The research design
applied was causal research design. The target population of the research project was 108 managers
from banks in tier II and tier III. The research embraced purposive sampling to come up with a
sample size of 85 respondents. The data was collected using questionnaires. The data collected
from the questionnaire was analyzed using IBM SPSS version 21.0 software. The findings were
then classified, tabulated and summarized using figures. Therefore, the analysis identified that
commercial banks loan performance aligns with the effectiveness of credit management practices
evident in the banks. The credit management practices that entail character, capacity, capital,
conditions, and collateral were less effective to loan performance than third party security. Periodic
loan review tends to be effective in loan performance as determined in the study with a positive
significance level as well as the extent of loan collateral presence on loan performance. The
analysis recommended that the commercial banks and the government to evaluate and formulate
policies that regulate exercises on credit risk management of loan delinquency