RELATIONSHIP BETWEEN CREDIT APPRAISAL AND LOAN PERFORMANCE BY COMMERCIAL BANKS IN UASIN GISHU COUNTY, KENYA
Abstract
Commercial banks play a very important role in economic growth of nations as they channel financial resources from savers (surplus units) to lenders (deficit units). The aim of this paper is to explain the relationship that existed between loan policy of credit appraisal and loan performance by commercial banks located in Uasin Gishu County, Kenya. Theoretically, this paper is anchored on moral hazard theory developed by Akerlof (1970). The population of study comprised of all credit officers working in commercial banks in Uasin Gishu County. According to figures from banks, there are 189 credit officers in 39 commercial banks that are located in the county and thus formed the target population. A sample size of 128 was chosen for this study. Research result showed that 78.1% of commercial banks conducted credit appraisal through use of 5Cs credit appraisal technique, credit-scoring model and through credit reference bureaus. The research also found out that there existed significant positive relationship (r=0.206 and p=0.035) between credit appraisal and loan performance by commercial banks in Uasin Gishu County, Kenya. The paper recommends that there is need for commercial banks to consider using mobile telephony company’s financial statements for an individual borrower to check on the cash flow before awarding a particular loan.
JEL: G21, E51, E51
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DOI: http://dx.doi.org/10.46827/ejefr.v0i0.557
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