Credit Risk Management And Financial Performance Of Deposit Taking Savings And Credit Co-Operative Societies In Nairobi City County, Kenya

ABSTRACT

In any nation, the financial sector is an essential segment in the advancement of its economic growth. Most disappointments in the financial sector have been caused by non-performing credits or awful obligations which are ascribed by poor or ineffectual advancing arrangement. While the consequences of credit risk management are surely understood, the bearing of the impacts are anticipated by theories and proof on their size are still rare, and revolve around managing an account segments and protection markets. The study‟s general objective was to study in detail the interdependence that exists between the management of credit risk and perceived and real financial strength of SACCOs that take deposits in Nairobi County. The specific study objectives focus on the relationship that exists between credit monitoring, credit appraisal and credit risk control in terms of financial SACCOs‟ performance in Nairobi County. Three theories guided the research: Portfolio Theory, Liquidity Preference Theory and Theory of Financial Intermediation. The design of this study was descriptive research. Target population was a total of 40 SACCOs that specialize in deposit taking within Nairobi County licensed by SASRA with a sample size covering 120 respondents (three respondents from each SACCO). The respondents comprised of Credit Risk Manager, Finance Officer and Head of Operations hence, purposive sampling. Data collection was facilitated by using a questionnaire as the instrument of data collection. Data analysis method was descriptive through the multiple regression analysis and standard deviation. Subsidiary data was gathered from SASRA reports and internal audited reports from the deposit taking SACCOS. For data analysis, version 20 of Statistical Package for Social Sciences (SPSS) was the data analysis tool used. Data presentation employed frequency tables, pie charts, histograms as well as bar graphs. The findings of this particular study revealed that although savings and credit co-operative societies had implemented credit monitoring measures, this study conclude that some of the current measure did not adequately address the current borrowing. There exists a positive and real relationship between credit appraisal programmer and SACCOs‟ financial performance. The was concluded by this study that credit monitoring, credit appraisal and credit risk control all had positive effect on SACCO‟s financial performance. This study recommends for periodic thorough scrutiny and amendment of credit monitoring policies so as to ensure that current loopholes are addressed. Risk control policies should be re-tightened however this should be done factoring in customer considerations as setting appraisal standards too high may limit client trends in loan borrowing and thus negatively affecting lending, Credit management committee must institute measures that ensures follow-ups are made on all loans issued, again some sought of training on loan utilization (business loans) may be introduces prior and after loan issuance so as to minimizes cases of debut in repayment and that Borrowers should be accorded the opportunity to fully understand terms and conditions governing the loan products prior before issuance