Effect of Credit Policy on the Performance of Commercial Banks; A Case Study of Equity Bank,Kakamega Branch, Kenya

ABSTRACT

THE study aimed at assessing the effects of credit policies on the performance

of commercial banks in Equity bank of Kenya. And to propose measures to

improve credit policy in equity banks.

For the effectiveness of the research, the researcher used a research design.of a

cases study of Equity bank Kakamega branch Kenya. Data collectioh · and

analysis were used to arrange the information in such a way that erlabled the

researcher to come up with the reliable recommendations and conclusion.

Different methodologies were employed which were research instruments and

analysis of data where the researcher used pie charts and presentation done in

bar graphs. The researcher found out that the good performance of Equity bank was mainly

contributed by the credit control measures as a result of well established credit

policy screening mechanism in place before credit is extended to clients. It's

evident from this study that indigenous commercial banks in Kenya use all the

elements of credit policy management process, but are not comprehensively

using the aspects of the various elements of the process in the management of

their credit function.There is a significant and positive relationship between the elements of credit

policy management and the performance of Equity bank thus these findings

reveal that the credit policy management in the bank has a strong impact of

the quality of the bank's portfolio and thus the performance of the bank

INTRODUCTION

1.0 Background of the study

A country's financial system, including its banking institutions is the oil that

greases the engine of its economic growth. Commercial banks provide the vital

functions of mobilizing saving from those who have it and allocate such savings

to those who wish to borrow to invest in economic development. When these

two cardinal functions are not effectively provided by a country's banking

institutions, then its economic performance is seriously hampered. Indigenous

commercial banks and other credit institutions design credit policies effectively

administering credit but they are faced with poor management of their loan

portfolios

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