Contribution of Credit Risk Management Strategies on Financial Stability: A Case of Commercial Banks in Kilifi County-Kenya

Abstract

This study sought to establish the contribution of Credit Risk Management strategies on the financial stability of commercial banks in Kilifi County. The study used descriptive research design and questionnaires were used to collect data. Analysis was done using descriptive statistics and content analysis as well as Mann Whitney and regression tests. The study shows that commercial banks use numerous tools and measures for controlling credit losses such as collaterals and credit protection. Mann Whitney tests of medians were run to determine whether banks in Kilifi perceived credit control policies to be appropriate for a variety of credit scenarios among clients and whether some measures were considered superior to others. Collaterals and Credit protection were considered to be equally (W=1584 p=0.2902) robust tools to control credit losses but superior to agreements (W=1860.5 p=0.0001), credit rationing (W=1782 p=0.0352) and contract evaluation (W=1712.5 p=0.0368). Credit protection as a strategy, to a great part contemplated as collateral by the bank, provided the most appropriate measure for handling multidimensional risks to credit for a diverse clientele operating in diverse client risk scenarios. The study recommends that Commercial Banks ought to develop risk management strategies that are consistent with their credit risk tolerance and their business goals.

Keywords: credit risk, commercial bank, risk, financial stability, strategy