Credit Risk Control and Asset Quality of Listed Commercial Banks at the Nairobi Securities Exchange, Kenya

Isaac Linus Ochieng’ ()

International Journal of Finance and Accounting, 2025, vol. 10, issue 5, 17 - 34

Abstract: Lending remains the core activity of commercial banks, and subsequently the largest source of credit risk. For that reason, mitigation of credit risk exposure is vital for going-concern purposes. This study sought to establish whether there exists a relationship between credit risk control and the asset quality of commercial banks listed at the NSE in Kenya. The theory that the study anchored upon was asymmetric information theory. The study employs quantitative research design. The population of the study was drawn from the 11 commercial banks listed at the NSE in Kenya. The study was conducted through a census. Secondary data from 2015 to 2024 was utilized with data collected from annual financial reports of listed commercial banks in Kenya, CBK and the KNBS and financial statements for analysis with the aid of a secondary data collection sheet. Data was analyzed using descriptive and inferential statistics. Panel regression results indicated that credit risk control had a significant and bidirectional effect on the asset quality of commercial banks listed at the NSE, Kenya. The findings therefore concluded that credit risk control has a positive significant effect on the asset quality of commercial banks listed at the NSE, Kenya. As a consequence of the findings, the policy recommendation for commercial banks id to set aside resources in loan loss reserves to cover possible defaults. This will ensure they can withstand unforeseen losses and preserve financial stability by serving as a financial buffer against any defaults. As a safety net, the reserves will enable lenders to withstand losses without suffering a major blow to their overall financial stability.

Keywords: Credit Risk Control; Asset Quality; Commercial Banks; Nairobi Securities Exchange (search for similar items in EconPapers)
Date: 2025
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