Effect of Bank Size on the relationship between Credit risk and Financial Performance of Commercial Banks in Kenya

Abstract

Commercial banks in Kenya have faced daunting challenges that touch on various key financial performance indicators and therefore impacting on performance. Credit risk affects the key financial indicators that are likely to impact performance of any lending institution. The main goal of this study was to ascertain the moderating effect of bank size on the relationship between credit risk and financial performance of Commercial banks in Kenya. Longitudinal research design was utilized on data from 41 licensed banks in the country. The study relied on secondary panel data and multiple regression was used and analysis was through STATA analytical tool. The study established that bank size has a significant effect on the financial performance. Introduction of bank size has added knowledge by demonstrating that the link between credit risk and financial performance cannot be studied in isolation. The study recommends that the government and the regulators should consciously encourage mergers and consolidations of commercial banks. Bigger and well capitalized banks are essential for the stability of financial system. This could be done by giving incentives to commercial banks that would be interested in such arrangements.

Key terms: Bank Size, Credit Risk, Financial Performance, Commercial Banks