@@ credit risk management on the financial performance of banks in kenya for the period 2000 –...

8/9/2019 @@ Credit Risk Management on the Financial Performance of Banks in Kenya for the Period 2000 – 2006

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International Journal of Business and Public Management (ISSN: 2223-6244) Vol. 2(2): 72-80

AbstractThe objective of study was to assess various parameters pertinent to credit risk management as it affectsbanks’ nancial performance. Such parameters covered in the study were; default rate, bad debts costsand cost per loan asset. Financial reports of 10 banks was used to analyze pro t ability ratio for seven

years (2000-2006) comparing the pro tability ratio to default rate, cost of debt collection an cost perloan asset which was presented in descriptive, regression and correlation was used to analyze the data.The study revealed that all these parameters have an inverse impact on banks’ nancial performance,however the default rate is the most predictor of bank nancial performance vis-à-vis the other indica-tors of credit risk management. The recommendation is to advice banks to design and formulate strate-

gies that will not only minimize the exposure of the banks to credit risk but will enhance pro tability

and competitiveness of the banks.

Danson Musyoki 1, Adano Salad Kadubo 21Catholic University of Eastern Africa P.O. Box 00200 – 62157 Nairobi2 Catholic University of Eastern Africa P.O. Box 00200 – 62157 Nairobi

Corresponding Author: Danson Musyoki

Recieved: August 8, 2011 Accepted: September 7, 2011

Keywords: Return on assets, Cost per loans, Default rate, Bad debts costJEL Classi cation: G0

The impact of credit risk management on the nancialperformance of Banks in Kenya for the period

2000 – 2006

72

Available online at: http//:www.journals.mku.ac.ke© MKU Journals, April 2012

Full Length Research Paper

INTRODUCTION

Financial performance is company’s ability to generate newresources, from day- to- day operations, over a given period oftime; performance is gauged by net income and cash fromoperations. A portfolio is a collection of investments held by aninstitution or a private individual (Apps, 1996).Riskmanagement is the human activity which integrates recognition

of risk, risk assessment, developing strategies to manage it, andmitigation of risk using managerial resources.( Apps, 1996).Whereas Credit risk is the risk of l oss due to a debtor’s non -

payment of a loan or other line of credit(either the principal orinterest (coupon) or both) (Campel, et. al., 1993) default rate isthe possibility that a borrower will default, by failing to repay

principal and interest in a timely manner (Campel, et. al.,1993). A bank is a commercial or state institution that providesfinancial services, including issuing money in various forms,receiving deposits of money, lending money and processingtransactions and the creating of credit (Campel, et. al., 1993).

Credit risk management is very important to banks as it is anintegral part of the loan process. It maximizes bank risk,adjusted risk rate of return by maintaining credit risk exposurewith view to shielding the bank from the adverse effects ofcredit risk. Banks are investing a lot of funds in credit risk

management modeling. The case in point is the Basel 11accord. There is need to investigate whether this investment incredit risk management is viable to the banks. This studytherefore seeks to investigate the impact of credit riskmanagement on a bank’s financial performance in Kenya. Thegeneral objective of the study was to establish the impact ofcredit risk management on the financial performance of banks.

The specific objectives were: to establish the impact of defaultrate on performance; to establish the impact of debt collectioncost on perforce, and; to establish the impact of cost per loanasset on performance

The study covered the banks operating in Nairobi; ten bankswere involved in the study. All the banks have offices in thecentral business district. The study was based in Nairobi

because the banking activities cover all sectors of the Kenyaneconomy and are a cosmopolitan town. The study covered the

period between 2000 and 2006 because this was the period thatthe banking industry had undergone various changes from

periods of high interest rates in 2000 to low interest rates in2006.


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LITERATURE REVIEW

Donald et al. (1996) defines Credit risk simply as the potentialthat a bank borrower or counterpart will fail to meet itsobligations in accordance with agrees terms. The goal of creditrisk management is to maximiz e a bank’s risk - adjusted rate ofreturn by maintaining credit risk exposure within acceptable

parameters. Banks need to manage the credit risk inherent inthe entire portfolio as well as the risk in individual credits ortransactions. Banks should also consider the relationships

between credit risk and other risks. The effective managementof credit risk is a critical component of a comprehensiveapproach to risk management and essential to the long-termsuccess of any banking organization.

According to Nelson and Schwedt (2006) the banking industryhas also made strides in managing credit risk. Until the early1990s, the analysis of credit risk was generally limited toreviews of individual loans, and banks kept most loans on their

books to maturity. Today, credit risk management encompasses both loans reviews and portfolio analysis. Moreover, the

development of new technologies for buying and selling riskshas allowed many banks to move away from the traditional book and hold lending practice in favor of a more activestrategy that seeks the best mix of assets in light of the

prevailing credit environment, market conditions, and businessopportunities. Much more so than in the past, banks today areable to manage and control obligor and portfolioconcentrations, maturities, and loan sizes, and to address andeven eliminate problem assets before they create losses. Many

banks also stress test their portfolios on a business line basis tohelp inform their overall management.

There are three stages in the credit process: the first is thesimple risk control of the business avoiding being overconcentrated in any one sector, estimating the probability ofdefaulting and assessing recovery. The second phase is the link

between economic capital and return. Clearly banks would liketo set minimum rates of return they expect to earn on their

portfolios after provisioning. The link between economic profitand risk is the next stage in advancing the practice of credit riskmanagement. Finally the third stage is when risk managementis used as a strategic management tool to align RAROC (RiskAdjustment Returns on Capital) with ROE (Return on Equity).Each bank must understand what drives the share price of the

bank and thus must understand the link between economiccapital, intellectual property owners IPOs (Intellectual PropertyOwners) and ROE. Once this paradigm is understood, banks

will be in a better competitive position to compete moreaggressively and likely service in the next decade (Lawrence,2006). Success in credit risk management has a highly visibleimpact on the results of the firm. For the management of creditrisk a profit and return focused activity within our broad baseof businesses.

According to Cuthbertson and Nitzsche (2003), riskmanagement technology has been transformed over the lastdecade. The speed of information flow and the sophistication ofthe international financial markets enable banks to identify,assess, manage and mitigate risk in a way that was just not

possible ten years ago. The most current credit modelingsoftware in place is Basel 11 Accord. This accord has certainly

been a catalyst in spearheading the drive towards buildingappropriate credit risk modeling and capital adequacy

requirements. However, it is no substitute whatsoever fordesigning a business risk strategy. Banks will have to decidewhat their risk appetite is , how to allocate their resourcesoptimally and in what markets to compete. The dramaticincrease in loan velocity and secondary market activity, such asin credit derivatives, implies that the old paradim has beenturned upside down. A bank will not necessarily have to holdonto the loans until maturity, but can sell off the risk. Thisallows much more efficient risk transfer and portfoliooptimization.

However, to do this effectively, banks must have a deepunderstanding of risk management, knowing how to price theirloans on a market to market basis, knowing what the marginalrisks adjusted contribution of each loan is and being able toallocate measure and monitor economic capital (Cuthbertsonand Nitzsche (2003).

In Kenya the Central bank has been involved in initiativesaimed at transforming the approach used for conducting its core

mandate of supervision and regulation of banks to make itmore risk focused, significant steps have been made towardsimplementation of risk based supervision. Inspection

procedures and report formats have been modified, and theCentral Bank received Risk Management programs (RMPs)from all institutions as required of them (Ngugi , 2001 ).

Ngugi, (2001) postulates that in order to determine the needs ofthe local banking sector with regard to risk management, thecentral bank of Kenya conducted a survey in September 2004that would provide a status position on the extent to which riskmanagement is practiced in the financial institutions operatingin Kenya. The survey revealed that there is a high level ofawareness in banking institutions on the importance ofemploying systematic methods of identifying, analyzing andcontrolling or mitigating risks (Cuthbertson and Nitzsche2003).

Kenya’s Central Bank’s concern has not only been over the lowlevel of risk management in the banks, but also in the fact thatthose who do only concentrate on credit risk. This means theeyes of the entire banking sector has handily been onoperational market liquidity, and reputation among other risks.But even as banks are being pushed to comply with the

provisions of Basel I, some analyst think that too manytechnological f inancial and institutional changes have occurredmaking it necessary to raise the bar. The CBK itself took more

than 15 years to operationalise the Basel I accord havingestablished risk mitigation guidelines only in 2005 following a

banking sector survey it conducted in 2004. Concerns over therelevance of Basel I has seen the CBK contemplate moving arung higher to implement the more advanced Basel 2framework that was agreed in June 1999.

Benedikt, Marsh, Vall and Wagner (2006), examined credit riskmanagement policies for ten banks in the united states using amultivariate model and found that banks that adopt advancedcredit risk management techniques (proxies by the issuance ofat least one collateralized loan obligation) experience a

permanent increase in their target loan level of around 50%.Partial adjustment to this target, however, means that theimpact on actual loan levels is spread over several years. Thefindings confirm the general efficiency- enhancing implications


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of new risk management techniques in a world with frictionssuggested in the theoretical literature.

The Macaulay (1988) investigated the adoption of credit riskmanagement best practices in the United States and reportedthat over 90% of the banks in that country have adopted the

best practices. Effective credit risk management has gained anincreased focus in recent years, largely due to the fact thatinadequate credit risk policies are still the main source ofserious problems within the banking industry. The chief goal ofan effective credit risk management policy must be tomaximize a bank’s risk adjusted rate of return by maintainingcredit exposure within acceptable limits. Moreover, banks needto manage credit risk in the entire portfolio as well as the risk inindividual credits transactions.

The bank of Jamaica conducted an empirical study on theimplementation of credit risk management policies bycommercial banks in that country. The study which involved allthe 73 banks in that country found out that only 46% hadimplemented them in full. This was partly attributed to the poorway in which the regulations had been communicated. Credit

policies establish the framework for lending and reflect aninstitution’s credit culture and ethical standards. To beeffective, policies must be communicated in a timely fashion,

be implemented through all levels of the organization byappropriate procedures and revised periodically in light ofchanging circumstances. The foundation of an effective creditrisk management programme is the identification of theexisting and potential risks inherent in an institution and the

parameters under which credit risk is to be controlled. Pressurefor increased profitability, marketing considerations and avastly more complex financial environment have resulted ininnovative credit instruments and approaches to credit.Measuring the risks attached to each credit activity permits thedetermination of aggregate exposures to counterparties for

control and reporting purposes, concentration limits and risks/reward returns.

Privately owned banks are more likely to implement credit riskmanagement polices than state owned banks. Kuo and Enders(2004) investigated credit risk management policies for state

banks in china using a survey research design. The study foundout that with the increasing opening of the financial market, thestate owned commercial banks in china are faced with theunprecedented challenges. As the core of national finance andvital of national economy, the state owned commercial bankscould not rival with foreign banks unless they make profoundchanges. And the reform of credit risk management is a majorstep that determines whether the state owned commercial banksin china would survive the challenges or not.

Research however faults some of the credit risk management policies in place. The European shadow Financial RegulatoryCommittee (ESFRC) (2007) researched on the impact of a

basel (ii) accord by conducting a survey of 93 banks and presented findings that objected to the highly complexapproach of the draft New Basel Capital Accord (Basel II). Itconsidered it to be excessively focused on the regulation of riskmanagement by individual banks. In addition, it also objectedto the treatment of operational risk, the politically influencedissues around lending to the small and medium sizedenterprises (SMEs), the insufficient consideration of the issue

of pro- cyclicality, and the reduced emphasis on the third pillar,i.e. market discipline. The study therefore recommended thatEuropean authorities apply the substance of the Basel IIadvanced approach only to very large internationally active

banks. Remaining banks would have the opinion of a simplifiedstandardized approach.

METHODOLOGY

The research design used for the study was a descriptiveresearch design that basically involve obtaining informationconcerning the current status of the phenomena to describe , “What exists” with respect to variables or conditions in asituation (Gardner et al 2004). This design was appropriate forthis study, as it gave the relevant information as it was. The

population of interest was the 48 banks that operate in Kenya.For the purpose of this study only a bank is an institutionregistered with the Kenya Bankers Association (KBA, 2006).The study employed simple random sampling inorder to pick10 banks. Simple Random sampling is sampling procedure thatassurers that each element in the population has an equalchance of being selected. A sample of 10 banks was used in thestudy. This constitutes 20.8 percent of the total population.

Secondary data was used for the study. The data was analyzed by calculating the profit ability ratio for each year for the period of study, trend analysis was done by comparing the profitability ratio to default rate, costs of debt collection andcost per loan asset. Further, the ratio were analysed usingregression statistical tool run using SPSS programmes versioneleven.

Definition of Variables

The return on Assets (ROA) is a ratio that measures companyearnings before interest & taxes (EBIT) against its total netassets. The ratio is considered an indicator of how efficient acompany is using its assets to generate before contractual

obligation must be paid. It is calculated as: ROA= EBIT/ TotalAssets. Return on assets gives an indication of the capitalintensity of the banking industry, which will depend on theindustry; banks that require large initial investment willgenerally have lower return on assets (Apps, 1996).

Default rate (DR) is the term for a practice in the financialservices industry for a particular lender to change the terms of aloan from the normal terms to the default terms that is, theterms and rates given to those who have missed payments onloan (Apps 1996). DR ratio can be calculated as Dr Ratio= NonPerforming Loans/ Total loan

Bad Debt Cost is created when a bank agrees to lend a sum ofassets to a debtor and granted with expected repayment; inmany cases, however the debtor is unable to repay the debt atthe fixed period of time by a certain date. In addition, changesin the valuation of debt currency change the effective size ofthe debt due to inflation or deflation, even though the borrowerand the lender are using the same currency. Consequently, thiscan lead to bad debt cost. Bad debt cost includes lawyer ’s fees,consultancy fees & commissions to auctioneers. (Apps, 1996).Bad debt costs ratio can be calculated as: BDC Ratio= Bad debtcost/ Total cost.

Cost per loan asset (CLA) is the average cost per loan advancedto customer in monetary term. Purpose of this is to indicate


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efficiency in distributing loans to customers. (Apps, 1996)CLA ratio can be calculated as : CLA Ratio= Total OperatingCost/ Total amount of loans.

FINDINGS

In this section the data collected for seven year (200-2006)from ten banks have been analyzed using SPSS programme,however much details are shown in appendix I. the selected

banks are: Kenya commercial Bank Ltd (KCB), Barclays BankOf Kenya (BBK), Consolidated Bank, CFC Bank, Equity Bank,Standard Chartered Bank (Stan Chart), Cooperative Bank (Co-op Bank), National Bank Of Kenya (NBK), Diamond trustBank (DTB) and NIC Bank

All the tests for significance were done at 95% confidencelevel, this means that all the above tests must have p- value lessor equal to 0.05 for the tests to be significant. Table 2 showscorrelations between the dependent variables and theindependent variables. It shows that there is a significant

relationship between return on assets and the default rate (r=0.590, P= 0.00), the relationship between return on assets and bad debts cost (r= 0.318, p= 0.04) is also significant and thecost per loan assets also showed significant relationship withthe return on assets. This finding therefore indicates that all therisk management indicators have direct relationship with

performance.

Table 5 contains the beta coefficients of the three independentvariables. The beta coefficients are indicators of the predictive

powers of the individual independent variables.

All the beta coefficients are negative, implying an inverserelationship between the dependent variable and the

independent variables. Thus a unit change in default rate, baddebt, and cost per loan asset result to an inverse change in

performance to the extent of 54%, 9.3% and 3.7% respectively.

Theoretical Model equationY= α+β1X1+ β2X2+ β3X3+ę

Where:Y= Return On Assets (RoA) ( The Dependent Variable)α= Constant Termβ= Beta CoefficientX1= Default Rate (DR)X2= Bad Debts Cost (BDC)X3= Cost per Loan Asset (CLA)ę= Error term

Equation ModelingY= 3.425- 0.540 X 1- 0.093 X 2- 0.037X 3 + ę Observation of the t-test for the default rate (-4.729) indicatethat the null hypothesis is rejected therefore there is asignificant negative relationship between default rate and returnon assets (performance) of the banks.

Default rate has the most significant and negative relationshipwith bank performance, costs per loan and bad debts cost has tvalues of -0.359 and -0.0853. However they are not significantas far as bank performance is concerned, we failed to reject the

null hypothesis. Its noted both variables (cost per loan and baddebts cost are negatively not significant)

The constant indicating (6.110) indicates the bankingenvironment within which banks operate in Kenya.

CONCLUSIONS AND RECOMMENDATIONS

The general objective of the study was to establish the impactof credit risk management on financial performance of banks,and the specific objectives were to establish impact of defaultrate, bad debt cost per loan asset on bank financial

performance. The result of the showed that credit riskmanagement is an important predictor of bank financial

performance thus success of bank performance depends on riskmanagement to the extent of around 36%. The study resultsalso showed that default rate as one of the risk managementindicator is a major predictor of the bank financial performanceto the extent of 54% and followed by bad debt cost at 9.3% andlastly slightly influenced by cost per loan asset up to 3.7%.Credit risk management is crucial on the banks performancesince it have a significant relationship with bank performance

and contributes up to 35.6 % of the bank performance Amongthe risk management indicators Default Rate management isthe single most important predictor of the bank performancesince it influences 54% of the total credit risk influence on bank

performance.

Risk management indicators such as Bad Debt Cost and Cost per Loan Asset are not significant predictors of bank performance.

Since risk management in general has very significantcontributions (35.6%) to banks performance, the banks areadvised to put more emphasis on risk management. In order toreduce risk on loans and achieve maximum performance the

banks need to allocate more funds to default rate managementand reduce spending on bad debt cost and cost per loan asset.Based on the study other factors not studied in this research hasa very significant contribution of 64.4% to bank performancetherefore require further research to efficiently manage thecredit risk hence improve bank financial performance.

REFERENCES

Apps. R, 1996. The Monetary and Financial System . London,Bonkers Books Ltd, 3 rd Edition.

Campbell, John Y and Hamao, Yasushi, 1993. The Interest Rate Process and the Term Structure of Interest Ratesin Japan . Kenneth J. Singleton, ed., JapaneseMonetary Policy, NBER Monograph, Chicago:University of Chicago Press . pp. 95-120.

Central Bank of Kenya, 1986. Central Bank of Kenya; itsevolution, responsibilities and organization . CentralBank of Kenya Quarterly Economic Review.

Cuthbertson, K. and Nitzsche, D., 2003. Long Rates, Risk Premiaand the Over-Reaction / Hypothesis . Economic

Modelling . Vol 20, pp 417-435, (2003).Donald E. Fisher & Ronald J. Jordan, 1996. Security Analysis

and portfolio management. New Delhi, India.Prentice – Hall of India Private Limite ., 6 th Edition.

Gardner M. J., Dixie L. Mills & Elizabeth S. Cooperman, 2004. Managing Financial Institutions. An Asset Liability

Approach, New York. The Dryden Press A division ofHarcourt College Publisher. 4 th Edition.


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Kuo, S. H. and Enders, W. 2004. The term structure ofJapanese interest rate: The equilibrium spread withasymmetric dynamics. The Japanese and

International Economies. Vol 18, pp 84-98 ,Macaulay, F.R. 1988. Some theoretical problems suggested by

the movements of interest rates, bond yields, and stock prices in the Unites States since 1856. NewYork: NBER.

Nelson, C.R. and G. W Schwert, 2006. Short-term InterestRates As Predictors of Inflation On Testing theHypothesis that the Real Rate of Interest is Constant .

American Economic Review . 67, p. 478-86. Ngugi R. W. 2001. An Empirical Analysis of Interes t Rate

Spread in Kenya . Afri can Economic ResearchConsortium (AERC) Research Paper No. 106.

APPENDICES

Table 1 Descriptive Statisticsmean Std. Deviation N

Return On Assets 1.416 2.343 70Default Rate 16.412 13.326 70Bad Debts Cost 19.575 14.358 70Cost per Loan Asset 22.490 12.978 70

Table 2 CorrelationsPersonCorrelation

Return OnAssets

DefaultRate

BadDebtCost

Cost perLoan Asset

Return On Assets 1,000 -.590 -.318 -.192Default rate -.590 1.000 .415 .285Bad debts -.318 .415 1.000 .005Cost per Loan Asset -.192 .285 .005 1.000

Sig.(1- tailed) Return On Assets - .000 .004 .056Default Rate .000 .000 .000 .008Bad debt cost .004 .008 . .482Cost per loan Asset .056 70 .482 .

N Return On Assets 70 70 70 70Default Rate 70 70 70 70Bad Debt Cost 70 70 70 70Cost per loan Asset 70 70 70 70

Table 3 Model SummaryR R Square Adjusted R

SquareStd. Error ofthe estimate

Rsquarechange

F Change Df1 Df2 Sig. FChange

.569 (a) .356 .326 1.9230 .356 12.139 3 66 .000

Predictors: (Constant), cost per loan Asset, bad debt cost, default rateAccording to the F statistics below the variables used in the model fits well in the model. The model shows that the three riskmanagement indicators combine have a significant relationship (R= 0.596, P=0.00) with performance. It is also shows that they can

predict up to 32.6% of the variance in performance.

Table 4 ANOVASum of Squares df Mean Square F Sig.

Regression 134.670 3 44.890 12.139 .000(a)Residual 244.071 66 3.698Total 378.741 69Predictors:(Constant), cost per loan Asset, Bad Debt Cost, Default Rate Dependent Variables: Return On Assets.The table above shows the ANOVA test of the fitness of the model. With an F statistics of 12.139 and p= 0.00, shows that the datafits the model well and this indicates that the variables specified in the model are actual predictors of performance.

Table 5 Coefficients (a)Model Unstandardized Coefficients Standardized

Coefficients

t Sig.

B Std. Error Beta(Costant ) 3.425 .561 6.110 .000

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Default Rate -.095 .020 -.540 -4.729 .000Bad Debt Cost -.015 .018 -.093 -.0853 .397Cost per loanAsset

-.007 .019 -.037 -.359 .721

Dependent Variables: Return On Assets

BANKS FINANCIAL ANALYSIS KSHS MILLIONBANK YEAR Total Lns &

Adv Non performingIns

TOTALCOST

BDDCOST

TOTALASSET

SPECFCPROV

EBIT

KCB 2006 40,659.00 3,791.00 8,024.00 642.00 87,326.00 1,024.00 2,355.002005 32,849.00 3,602.00 6,935.00 565.00 74,338.00 1,380.00 1,343.002004 33,644.00 7,343.00 6,206.00 878.00 66,349.00 958.00 640.002003 24,949.00 7,899.00 6,299.00 1,331.00 57,750.00 12,463.00 581.002002 27,651.00 12,238.00 10,004.00 4,684.00 57,193.00 12,352.00 (2,038.00)2001 30,485.00 10,280.00 10,064.00 4,530.00 62,289.00 (864.00)2000 33,141.00 9,597.00 10,103.00 4,360.00 65,889.00 3,966.00 (464.00)

RATIOS 2006 2005 2004 2003 2002 2001 2000Default Rate 8.53 9.9 19.7 24.05 30.68 25.22 22.46Bad Debt Cost 8.0 8.1 14.1 21.37 46.82 45.01 43.16Cost per loan Asset 0.2 0.2 0.2 0.25 0.36 0.33 0.30ROA 2.7 1.8 1.0 1.01 (3.56) (1.39) (0.70)

BANKS FINANCIAL ANALYSIS KSHS MILLIONBANK YEAR Total

Lns &Adv

Non performingIns

TOTALCOST

BDDCOST

TOTALASSET

SPECFCPROV

EBIT

CONSOLIDATED 2006 1,642.00 607.00 483.00 53.00 3,437.00 7.00 16.002005 1,289.00 673.00 455.00 12.00 2,916.00 6.00 12.002004 1,115.00 874.00 421.00 43.00 2,753.00 444.00 (71.00)2003 1,105.00 740.00 445.00 32.00 2,442.00 473.00 12.002002 1,025.00 564.00 452.00 37.00 2,125.00 4.712001 978.00 555.00 437.00 35.00 1,891.00 2.202000 942.00 546.00 462.00 60.00 1,702.00 (7.00)

RATIOS2006 2005 2004 2003 2002 2001 2000

Default Rate 26.99 34.3 48.9 40.11 35.49 36.20 36.69Bad Debt Cost 11.0 2.6 10.2 7.19 8.19 8.01 12.99Cost per loan Asset 0.3 0.4 0.4 0.40 0.44 0.45 0.49ROA 0.5 0.4 -2.6 0.49 0.22 0.12 (0.41)

BANK YEAR Total Lns &Adv

NonperformingIns

TOTALCOST

BDDCOST

TOTALASSET

SPECFCPROV

EBIT

EQUITYBANK

2006 10,929.00 568.00 2,269.00 133.00 20,024.00 67.00 753.00

2005 5,524.00 519.00 1,302.00 124.00 11,457.00 104.00 345.002004 2,874.00 246.00 818.00 171.00 6,707.00 157.00 136.002003 1,362.00 122.00 612.00 147.00 4,502.00 92.502002 843.00 77.00 430.00 124.00 2,417.00 49.202001 650.00 63.80 374.00 119.70 1,768.00 35.252000 235.00 24.30 127.00 43.18 1,358.00 17.20

RATIOS2006 2005 2004 2003 2002 2001 2000

Default Rate 4.94 8.6 7.3 8.22 8.37 8.94 9.37


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Bad Debt Cost 5.9 9.5 20.9 24.02 28.84 32.01 34.00Cost per loan Asset 0.2 0.2 0.3 0.45 0.51 0.58 0.54ROA 3.8 3.0 2.0 2.05 2.04 1.99 1.27

BANK YEAR Total Lns &

Adv

Non

performingIns

TOTAL

COST

BDD

COST

TOTAL

ASSET

SPECFC

PROV

EBIT

STANDARDCHRTRD

2006 37,762.00 2,646.00 3,708.00 408.00 81,014.00 639.00 2,634.00

2005 34,042.00 2,371.00 3,4223.00 394.00 72,842.00 627.00 2,452.002004 26,557.00 2,192.00 3,689.00 547.00 67,113.00 295.00 1,833.002003 18,924.00 2,092.00 3,395.00 810.00 64,111.00 264.00 2,789.002002 17,972.00 2,794.00 3,022.00 906.00 58,271.00 2,582.002001 17,680.00 2,787.00 2,973.00 1,041.00 52,414.00 2,362.002000 17,036.00 2,694.00 2,833.00 1,364.00 49,516.00 2,175.00

RATIOS2006 2005 2004 2003 2002 2001 2000

Default Rate 6.55 6.5 7.6 9.95 13.45 13.62 13.65Bad Debt Cost 11.0 11.5 14.8 23.86 29.98 35.02 48.15Cost per loan Asset 0.1 0.1 0.1 0.18 0.17 0.17 0,17ROA 3.3 3.4 2.7 4.35 4.43 4.51 4.39


NonperformingIns

TOTALCOST

BDDCOST

TOTALASSET

SPECFCPROV

EBIT

COOP BANK 2006 28,037.00 9,486.00 5,624.00 1,424.00 57,683.00 852.002005 29,089.00 13,250.00 4,553.00 1,054.00 51,835.00 15,075.00 440.002004 27,009.00 12,935.00 3,822.00 886.00 48,461.00 12,969.00 207.002003 20,165.00 11,370.00 3,500.00 720.00 36,720.00 102.002002 16,123.00 10,354.00 2,733.00 670.00 29,855.00 16.002001 13,250.00 8,250.00 2,120.00 630.00 27,200.00 (730.00)2000 11,632.00 7,223.00 1,977.00 607.00 25,572.00 1,638.00 (1,438.00)

RATIOS2006 2005 2004 2003 2002 2001 2000

Default Rate 25.28 31.3 32.1 36.06 39.11 38.37 38.31Bad Debt Cost 25.3 23.1 23.2 20.57 24.52 29.72 30.70Cost per loan Asset 0.2 0.2 0.1 0.17 0.17 0.16 0.17ROA 1.5 0.8 0.4 0.28 0.05 (2.68) (5.62)

BANK YEAR Total Lns &

Adv

Non

performingIns

TOTAL

COST

BDD

COST

TOTAL

ASSET

SPECFC

PROV

EBIT

NBK 2006 26,491.00 17,438.00 4,439.00 2,321.00 36,123.00 1,425.00 624.002005 24,213.00 17,146.00 3,655.00 1,663.00 32,584.00 3,434.00 599.002004 22,302.00 5,124.00 3,533.00 1,677.00 30,594.00 2,160.00 382.002003 20,320.00 5,883.00 3,434.00 1,563.00 25,919.00 2,275.00 404.002002 18,564.00 8,100.00 3,380.00 1,537.00 24,520.00 21.002001 18,350.00 8,230.00 3,355.00 1,502.00 24,255.00 (720.00)2000 18,385.00 7,527.00 3,377.00 1,569.00 23,967.00 6,380.00 (2,206.00)

RATIOS2006 2005 2004 2003 2002 2001 2000

Default Rate 39.70 41.5 13.0 22.45 30.38 30.96 29.05

Bad Debt Cost 52.3 45.5 47.5 45.52 45.47 44.77 46.46Cost per loan Asset 0.2 0.2 0.2 0.17 0.18 0.18 0.18ROA 1.7 1.8 1.2 1.56 0.09 (2.97) (9.20)


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NonperformingIns

TOTALCOST

BDDCOST

TOTALASSET

SPECFCPROV

EBIT

BBK 2006 73,907.00 6,214.00 8,648.00 881.00 118,021.00 4,492.002005 65,562.00 11,877.00 8,844.00 1,330.00 104,522.00 3,729.002004 63,222.00 5,237.00 8,384.00 1,913.00 106,195.00 3,844.00 3,694.002003 56,470.00 6,192.00 9,152.00 1,613.00 96,655.00 2,652.00 3,367.002002 50,165.00 6,123.00 8,944.00 1,513.00 85,914.00 1,016.00 1,783.002001 45,560.00 4,918.00 7,027.00 1,037.00 73,647.00 1,032.00 2,955.002000 42,240.00 2,981.00 8,289.00 1,641.00 70,377.00 692.00 2,068.00

RATIOS2006 2005 2004 2003 2002 2001 2000

Default Rate 7.76 15.3 7.0 9.88 10.88 9.73 6.59Bad Debt Cost 10.2 15.0 22.8 17.62 16.92 14.76 19.80Cost per loan Asset 0.1 0.1 0.1 0.16 0.18 0.15 0.20

ROA 3.8 3.6 3.5 3.48 2.08 4.01 2.94


NonperformingIns

TOTALCOST

BDDCOST

TOTALASSET

SPECFCPROV

EBIT

CFC 2006 15,053.00 1,367.00 1,419.00 172.00 40,369.00 940.002005 11,662.00 749.00 942.00 91.00 33,095.00 552.002004 10,969.00 548.00 2,677.00 75.00 29,816.00 260.00 433.002003 7,831.00 532.00 1,894.00 115.00 16,430.00 235.00 299.002002 7,266.00 465.00 1,725.00 113.00 14,235.00 245.002001 5,346.00 250.00 1,532.00 98.00 12,354.00 201.002000 5,261.00 180.00 1,493.00 64.00 7,972.00 150.00 194.00

RATIOS2006 2005 2004 2003 2002 2001 2000

Default Rate 8.33 6.0 4.7 6.36 6.01 4.47 3.31Bad Debt Cost 12.1 9.7 2.8 6.07 6.55 6.40 4.29Cost per loan Asset 0.1 0.1 0.24 0.2 0.24 0.29 0.28ROA 2.3 1.7 1.5 1.82 1.72 1.63 2.43

BANK YEAR Total Lns& Adv

Nonperform

ing Ins

TOTALCOST

BDDCOST

TOTALASSET

SPECFC

PROV

EBIT

DTBK 2006 13,832.00 30.00 1,679.00 59.00 21,737.00 488.002005 10,318.00 6.00 1,373.00 92.00 16,384.00 295.002004 7,137.00 18.00 578.00 36.00 11,167.00 72.00 164.002003 4,882.00 45.00 447.00 45.00 8,659.00 50.00 139.002002 3,750.00 123.00 896.00 31.00 6,274.00 75.002001 2,230.00 223.00 900.00 35.00 5,516.00 41.002000 1,486.00 391.00 883.00 28.00 5,081.00 92.00 164.00

RATIOS2006 2005 2004 2003 2002 2001 2000

Default Rate 0.22 0.1 0.3 0.91 3.18 9.09 20.83Bad Debt Cost 3.5 6.7 6.2 10.07 3.46 3.89 3.17

Cost per loan Asset 0.12 0.13 0.1 0.1 0.2 0.40 0.59ROA 2.2 1.8 1.5 1.61 1.20 0.74 3.23

79


9/9



NonperformingIns

TOTALCOST

BDDCOST

TOTALASSET

SPECFCPROV

EBIT

NIC 2006 16,570.00 624.00 1,306.00 133.00 26,052.00 458.002005 14,259.00 175.00 1,116.00 101.00 20,700.00 288.00

2004 11,541.00 214.00 782.00 20.00 16,643.00 375.00 261.002003 6,896.00 134.00 585.00 57.00 10,990.00 626.00 243.002002 4,713.00 346.00 491.00 88.00 9,329.00 600.00 229.002001 4,247.00 431.00 477.00 70.00 8,396.00 492.00 257.002000 3,940.00 419.00 489.00 113.00 7,442.00 702.00 313.001999 4,283.00 354.00 557.00 228.00 7,212.00 257.00 301.00

RATIOS2006 2005 2004 2003 2002 2001 2000

Default Rate 3.63 1.2 1.8 1.91 6.84 9.21 9.61Bad Debt Cost 10.2 9.1 2.6 9.74 17.92 14.68 23.11Cost per loan Asset 0.08 0.08 0.1 0.1 0.1 0.11 0.12ROA 1.8 1.4 1.6 2.45 3.06 4.21 4.21

80

@@ credit risk management on the financial performance of banks in kenya for the period 2000 –...

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