The Relationship Between Credit Risk Management and Profitability Among the Commercial Banks in Kenya

Banks operate in an environment of considerable risks and uncertainty. Credit risk has always been a vicinity of concern not only to bankers but to all in the business world because the risks of a trading partner not fulfilling his obligations in full on due date can seriously jeopardize the affairs of the other partner. Credit risk management in banks has become more important not only because of the series of financial crisis that the world has experienced in the recent past, but also the introduction of Basel II Accord. The objective of the study was to establish the relationship between credit risk management and profitability in commercial banks in Kenya, Both qualitative and quantitative methods were used in order to fulfill the main purpose of the study. A regression model was used to do the empirical analysis. The results obtained from the regression model show that there is an effect of credit risk management on profitability at a reasonable level. The findings and analysis reveal that credit risk management has an effect on profitability in all the commercial banks analyzed.

The Fifth China International Credit and Risk Management Conference

The 5th China International Credit and Risk Man- agement Conference was held on September 24- 26 in Xiamen,Fuiian province.More than 600 enterprises,mainly from the fields of import and export trade,manufacturing and finance,sent their repre-

Consumer lending efficiency:commercial banks versus a fintech lender

Fintechs are believed to help expand credit access to underserved consumers without taking on additional risk.We compare the performance efficiency of LendingClub’s unsecured personal loans with similar loans originated by banks.Using stochastic frontier estimation,we decompose the observed nonperforming loan(NPL)ratio into three components:the best-practice minimum NPL ratio,the excess NPL ratio,and a statistical noise,the former two of which reflect the lender’s inherent credit risk and lending inefficiency,respectively.As of 2013 and 2016,we find that the higher NPL ratios at the largest banks are driven by inherent credit risk,rather than lending inefficiency.Smaller banks are less efficient.In addition,as of 2013,LendingClub’s observed NPL ratio and lending efficiency were in line with banks with similar lending volume.However,its lending efficiency improved significantly from 2013 to 2016.As of 2016,LendingClub’s performance resembled the largest banks–consistent with an argument that its increased use of alternative data and AI/ML may have improved its credit risk assessment capacity above and beyond its peers using traditional approaches.Furthermore,we also investigate capital market incentives for lenders to take credit risk.Market value regression using the NPL ratio suggests that market discipline provides incentives to make less risky consumer loans.However,the regression using two decomposed components(inherent credit risk and lending inefficiency)tells a deeper underlying story:market value is significantly positively related to inherent credit risk at most banks,whereas it is significantly negatively related to lending inefficiency at most banks.Market discipline appears to reward exposure to inherent credit risk and punish inefficient lending.