Credit Risk Management Essay

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Banks are the largest Financial Institutions in Kenya and around the world. Commercial banks are financial institutions that provide financial services that include, issuing money in various forms, receiving deposits of money, lending money and processing transactions and the creation of credit (Campbell, 2007). Performance is the ultimate test of effectiveness of risk management. Performance and Activity of banks is greatly affected due to the exposure to different kinds of risks. Credit risk is the main risk that banks face and its one of the main sources of income in most commercial banks hence the management of the credit risk affects the performance of the banks.
Knowing the impact of credit risk have on the performance of the bank is …show more content…

In the last two decades, the banking sector has been faced by with various challenges that include and not limited to, Non-performing loans, political interference, and fluctuations of interest rates among others.
Credit risk management is the most important as it forms the most important part of the loans process Credit risk management maximizes bank risk, adjusted risk rate of return by maintaining credit risk exposure. Credit risk measurement is an important exercise for any financial institution. Credit risk may be classified under two categories. Issuer risk and Counterparty risk.
Issuer risk is when the issuer/ obligor defaults and is unable to fulfill their payment obligations while counterparty risk is includes default risk, replacement risk, and settlement risk. Default risk is whereby the counterparty defaults without any payment or incomplete payment on the transaction, Settlement risk is when the parties involved in the settlement fail before the full settlement of the transaction, Replacement risk is the risk that after the default by the obligor, replacing the deal under the same conditions is not …show more content…

CBK appointed the Kenya Deposit Insurance Corporation (KDIC) to take over the management and control of the bank for 12 months. Imperial bank LTD was ranked as one of the best banks in kenya being ranked seventeenth on total customer deposits with 1.8 percent of total industry.the launch of a 2 Billion shillings coporate bond offer in august was followed by the banks recievership. Chase bank which is the latest bank to be placed under recievership by the CBK, the bank has been put under statutory management for a year from April 7, 2016 due to the unfavorable financial

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