Credit Risk Management and Liquidity of Commercial Banks in Kenya

Liquidity has remained a challenge among commercial banks in Kenya. For instance, the ratio of loans against deposits of the said banks stood at 0.740969, 0.74092, 1, 0.713654 and 0.795822 with an average value being 0.798273 across the period 2018, 2019, 2020, 2021 and 2022 respectively. This implies that most of the commercial banks did not have adequate assets as compared to deposits needed to finance customer loan requests which provide evidence of liquidity concerns among commercial banks in Kenya. This study examined the effect of credit information sharing, loan loss provisioning, and lending requirements on the liquidity of commercial banks in Kenya. Guided by relevant financial theories, it adopted a positivist, explanatory approach using both primary and secondary data from 39 banks between 2018 and 2022. The questionnaire was pilot tested before data gathering process among 4 credit managers from commercial banks in Kenya. The reason for pilot testing was to determine reliability of questionnaire while its validity was ensured by supervisor and two experts in the field of finance. Processing of the gathered data was done descriptively and inferentially and presented in tabular and graphical forms. Multicollinearity, normality was conducted as diagnostic tests before regression analysis to test its assumptions. The ethical issues that were considered in this study included appropriate citation and referencing of the information reviewed to avoid plagiarism and voluntary participation by respondents. The findings were that credit information sharing (p<0.05), loan loss provisioning (p<0.05) and lending requirements (p<0.05) had significant effect on liquidity of commercial.  The study concluded that credit risk management and liquidity of commercial banks in Kenya are significantly related with each other. It was recommended that Credit Managers working among commercial banks in Kenya should invest in latest technologies for carrying out timely credit information of customers with the licensed Reference Bureaus. The loan officers working with commercial banks in Kenya should diversify into loan portfolio in order to remain stable and have meaningful contribution to the growth of an economy. Managers working with commercial banks in Kenya should effectively invest in lending requirements like land title deeds and logbooks in order to improve on their credit risk management which in turn can allow them achieve optimal and required liquidity levels. Key words: Credit risk management, liquidity, credit information sharing, lending requirements and loan loss provisioning