EFFECT OF CREDIT RISK MANAGEMENT PRACTICES ON FINANCIAL PERFORMANCE OF DEPOSIT TAKING SAVINGS AND CREDIT COOPERATIVES SOCIETIES IN MOMBASA COUNTY
Abstract
The purpose of this study was to investigate the credit risk management practices on the financial performance of deposit taking savings and credit cooperative societies in Mombasa County. The study adopted descriptive survey research design. The total population of the study was 55 employees drawn from five deposit taking savings and credit cooperative societies in Mombasa County. Stratified sampling technique was used to choose a sample of 48 respondents. The study used primary and secondary data. The collected data was analyzed by the data analysis tool, Statistical Package for Social Science (SPSS) version 25. The data analysis techniques employed by the study were descriptive and inferential statistics. Descriptive analysis computed mean and standard deviation while multiple regression and correlation analysis indicated the nature and the extent of the relationship existing between the study variables. Results were presented in frequency and descriptive table. The study findings revealed that the Saccos do credit referencing with CRB regarding lending decisions to borrowers and effective credit risk identification mechanisms. The credit department of Saccos search for the client historical records to determine risk level and that the Sacco has information gathering techniques which are effective and also they interview the credit applicant and carries out check list analysis prior to credit consideration. The study concluded that Sacco conducts business plan analysis to identify risk exposure and that the Sacco considers cash flow projections before credit approval. Also the collateral provided by the loan applicant is valued before the credit approval and that the borrower’s capability is established before credit approval. The results showed that the conditions of loan are assessed by the Sacco and that the capital of the business is assessed before credit approval. The study recommended that the management of the deposit taking Saccos should perform credit referencing by engaging Credit Reference Bureau whenever making lending decisions. This would serve as an effective way to identify potential defaulters and delist them from credit consideration. The Saccos credit department should be empowered financially to be able to effectively gather historical information of an individual so as to determine that individual’s risk level in addition to conducting check list analysis before granting credit to the applicant.
Key Words: Credit Risk Identification, Credit Risk Appraisal, Credit Risk Monitoring, Credit Risk Control
CITATION: Kabugu, J. M., & Wamiori, G. (2022). Effect of credit risk management practices on financial performance of deposit taking Savings and Credit Cooperatives Societies in Mombasa County. The Strategic Journal of Business & Change Management, 9 (4), 54 - 67.
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DOI: http://dx.doi.org/10.61426/sjbcm.v9i4.2390
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