"A Case Study Of Equity Bank, Naiv Asha Branch,"- Kenya.

TABLE OF CONTENTS

DECLARATION ................................................................................................................. III

APPROVAL ....................................................................................................................... IV

DEDICATION ..................................................................................................................... V

ACKNOWLEGEMENT ................................................................................................... VI

ABSTRACT ...................................................................................................................... VII

ABBREVIATIONS ......................................................................................................... VIII

CHAPTER ONE ................................................................................................................... 1

1.0 INTRODUCTION .............................................................................................................. 1

1.1 BACKGROUND OF THE STUDY ........................................................................................ 1

1.2 STATEMENTOFTHEPROBLEM ........................................................................................ 2

1.3 PURPOSE OF THE STUDY ................................................................................................. 2

1.4 OBJECTIVE OF THE STUDY .............................................................................................. 2

1.5 RESEARCH QUESTIONS ................................................................................................... 2

1.6 SCOPE OF STUDY ...............................................................................................•............ 3

1.7 SIGNIFICANCE OF THE STUDY ......................................................................................... 3

1.8 THE CONCEPTUAL FRAMEWORK .................................................................................... .4

CHAPTER TWO .................................................................................................................. 5

LITERATURE REVIEW .................................................................................................... 5

2.0 INTRODUCTION ............................................................................................................ 5

2.1 CREDIT RISK MODEL ...................................................................................................... 5

2.2 CONSUMER BANK CREDIT ..•.......................................................................................... 7

2.3 IMPORTANCE OF CREDIT ................................................................................................ 8

2.4 CREDIT POLICY .............................................................................................................. 8

2.4.1 Credit standards and analysis . .............................................................................. 9

2.4.2 Credit Terms ........................................................................................................ 10

2.4.3 Collection policy .................................................................................................. 11

2.5 EFFECTS OF CREDIT ON PERFORMANCE OF COMMERCIAL BANKS ......................•.....•.... 11

2.6 FUNCTIONS OF CREDIT MANAGEMENT POLICY IN THE ECONOMY ................................. 12

2. 6.1 Reducing the rate of defaulters ............................................................................ 12

2.6.2 Maintains liquidity ............................................................................................... 13

2.6.3 Maintains favorable spread ................................................................................. 14

CHAPTER THREE ............................................................................................................ 15

RESEARCH METHODOLOGY ...................................................................................... 15

3.0 INTRODUCTION ...•........................................................................................................ 15

3.1 RESEARCH DESIGN ...................................................................................................... 15

3.2 THE STUDY POPULATION .............•....•.......................................................................... 15

3.3 SAMPLING DESIGN AND SIZE .................................................•...................................... 16

3.3.1 Sampling Design .................................................................................................. 16

3.3.2 Sample Size .......................................................................................................... 16

3.3.3 Data Source, Collection and Analysis ................................................................. 16

3.3.4 Data Source ......................................................................................................... 16

3.3.5 Data Collection Methods and Instruments .......................................................... 16

3.3. 6 Data processing and Analysis ............................................................................. 17

CHAPTER FOUR .............................................................................................................. 18

PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS .......................... 18

4.0 INTRODUCTION ............................................................................................................ 18

4.1 BIODATA ..................................................................................................................... 18

4.1.1 Respondents Designations ................................................................................... 18

4.1.2 Respondents by Age, Sex and education level. .................................................... 19

4.1.3 Length ofservice .................................................................................................. 22

4.2 CREDIT POLICY IN EQUITY BANK ................................................................................. 24

4.2.1 Credit policy review ............................................................................................. 26

4.2.2 Credit evaluation in Equity bank. ........................................................................ 28

4.3 CREDIT RA TING ............................................................................................................ 29

4.3.1 Response on factors on assessment ofcreditfacility ........................................... 31

4.3.2 Response on credit recovery approach. .............................................................. 33

4.4 RESPONSE ON DURATION GIVEN TO BORROWERS ......................................................... 34

CHAPTER FIVE ................................................................................................................ 39

DISCUSSION OF FINDINGS, RECOMMENDATION AND CONCLUSION .......... 39

5.0 INTRODUCTION ...................................................................................................... 39

5.1 DISCUSSION OF FINDINGS ............................................................................................. 39

5.1.1 Biodata ................................................................................................................ 39

5.1. 2 Credit Rating. ...................................................................................................... 3 9

5.1. 3 Credit policy . ....................................................................................................... 40

5.1.4 Credit terms ......................................................................................................... 41

5.1.5 Credit evaluation ................................................................................................. 42

5.1.6 Credit Recovery approach. .................................................................................. 43

5.1. 7 Duration given to borrowers . .............................................................................. 44

5.2 RECOMMENDATION .................................................................................................... .45

5.3 LIMITATIONS OF THE STUDY ........................................................................................ 45

5 .4 CONCLUSION .............................................................................................................. .46

BIBLIOGRAPHY ............................................................................................................ 47

APPENDICES .................................................................................................................. 49

II 

ABSTRACT The study was aimed at assessing the effects of credit policy on the performance of

commercial banks like Equity bank of Kenya taking case study to be Naivasha 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 chai1s, 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 enabled 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 w011hiness of its customers. Credit rating also helps the bank to reduce the defaulters

and also keeping and checking 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 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 include improper appraisal, conmen, poor supervision,

political influence, weak legal system, diversion of funds, non- compliance and poor

payment.

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