Credit Risk Management, Firm Age and Financial Performance: Evidence from Commercial Banks in Kenya

Abstract

This study examined the effect of credit risk management on financial performance of commercial banks in Kenya and tested whether firm age moderates this relationship. Using secondary panel data for 42 commercial banks over the period 2013–2022, credit risk management was captured using indicators such as delinquency rate, value at risk, and distance to default, while financial performance was assessed using standard bank performance metrics. Panel regression analysis was employed to estimate the direct effect of credit risk management on financial performance and the interaction effect between credit risk management and firm age. The results show that credit risk management significantly influences financial performance; however, firm age does not significantly moderate the relationship between credit risk management and financial performance among commercial banks in Kenya. Based on the findings, the study concludes that effective credit risk management remains a critical determinant of financial performance in commercial banks, regardless of their age. The absence of a significant moderation effect implies that both young and mature banks benefit similarly from sound credit risk practices. The study recommends that bank managers consistently strengthen credit appraisal, monitoring, and recovery mechanisms, while policymakers and regulators should continue enforcing robust credit risk management frameworks across the banking sector without differentiating requirements based on firm age.

Keywords:       Credit risk management, financial performance, delinquency rate, value at risk, distance to default, and firm age.