Determinants of Credit Losses for Commercial Banks in Kenya

The main risks facing commercial banks in Kenya are credit risks, market risks, operational risks, interest rate risks, foreign exchange risks and legal and reputational risks. Credit risks or credit losses represented by the likelihood that not all borrowers will repay their debts according to the terms agreed is the main risk that threaten the stability of commercial banks in Kenya. When loan default occurs and loan recovery process fails commercial banks have to recognise the credit losses which have an impact on the banks profitability as well as on regulatory capital requirements. Continued erosion of capital and profits due to massive credit losses have led to collapse of many banks in Kenya in the past while others have been placed under receivership by the Central Bank of Kenya. This study therefore aimed at establishing the determinants of credit losses in Kenyan banking industry with specific objective being estimating whether GDP growth, credit growth, lending rates and credit quality do influence credit losses in Kenyan banking industry. Anchored on the Credit Risk Management theory and Capital Adequacy Theory this study adopted a longitudinal research design. Secondary