THE EFFECTS OF CREDIT POLICY ON THE PERFORMANCE OF COMMERCIAL BANKS

ABSTRACT

The study was aimed at assessing the effects of credit policy on the performance of commercial banks in Equity bank of Kenya taking case study to be Kisumu branch. The study was mainly to look at credit risk policy and the performance of the Equity bank and if this had been effective to the bank. For the effectiveness of the research, the researcher used research design, data collection and analysis was used to arrange the information in such a way that enabled the researcher to come up with the reliable recommendations and conclusions. Different methodologies were employed which were research design, study population, sampling design, research instruments and analysis of data where the researcher used pie charts, and presentation was done in bar graphs. It was realised that the performance of any commercial bank depends on its existing credit policy at any given time period thus Equity bank use credit policy to evaluate the credit worthiness of its customers hence this has enable the bank to run smoothly and effectively. It was also found out that Equity bank uses credit rating policy which helps them to rate the credit worthiness of its customers. Credit rating also helps the bank to reduce the defaulters and the Equity bank keep and check the financial records of their clients. It was also revealed that the bank uses credit evaluation where this looks at the in depth analysis in a client application. It is the duration it takes a client to access the funds from the time an application on credit facility is tendered in from to the time the bank disburse the loan. It is true that the majority of the clients takes a month for their loans to be approved from Equity bank thus is seen when a customer has meet all the requirements needed by the bank. Despite the good performance of Equity bank due to its credit policies, the bank had however faced some challenges' which had hindered their operations hence this has caused bad debts in the bank. These are improper appraisal, conmen, poor supervision, political influence, weak legal system, diversion of funds, non- compliance and poor payment