Effect of Lending Policy on Financial Stability of Commercial Banks: Empirical Evidence of Banking Sector in Kenya

The study assessed the effects of Lending Policy on Financial stability of banks in Kenya. In achieving the objectives identified in this study, the collected data of listed banks were analyzed. Credit Risk Management Strategies has become an important topic for financial institutions, especially since the business sector of financial services is related to the conditions of uncertainty. The turmoil of the financial industry emphasizes the importance of effective risk management procedures. The research objective was formulated in order to gain a better understanding of credit risk management strategies and its impact on performance (Return on Assets). Credit risk has always been a vicinity of concern not only to bankers but also 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. The axle of this study was to have a clearer picture of the process banks employ to manage their credit risk. The study results postulated clear and precise guidelines designed to enable Commercial Banks to make informed successful credit risk management. From the values of the coefficients the researches discerned that the independent variables are correlated to the dependent variable. In conclusion, the study established that independent variables significantly affect credit risk management and that commercial banks need to formulate credit policies in order to minimize risk of collection but aim at increasing revenue. From the study, it is recommended that commercial banks should educate their clients on their credit policies in order to improve credit management. The study also recommends that further research should be done on the impact of credit reference reporting on credit risk management and the extent to which other hidden factors from Lending Policy for Financial Stability and performance.