CREDIT RISK MANAGEMENT PRACTICES AND PERFORMANCE OF MORTGAGE LOANS IN TIER ONE COMMERCIAL BANKS IN KENYA
Laban Kibichii Tanui - Postgraduate Student, Department of Accounting and Finance, School of Business Economics and Tourism, Kenyatta University, Kenya
Dr. Moses Odhiambo Aluoch - Lecturer, School of Business Economics and Tourism, Kenyatta University, Kenya
ABSTRACT
Tier One commercial banks dominate Kenya’s mortgage market, accounting for approximately 89.9 per cent of the outstanding mortgage portfolio, yet mortgage loan performance remains a concern amid rising delinquency and non-performing mortgage loans. This study examined the effect of credit risk management practices on mortgage loan performance among Tier One commercial banks in Kenya. The study focused on credit appraisal management, collateral management, loan monitoring management, and loan recovery management practices. Guided by Asymmetric Information Theory, Credit Rationing Theory, Credit Risk Theory, and Financial Intermediation Theory, the study adopted a cross-sectional survey design targeting 45 officers across the nine Tier One commercial banks in Kenya using a census approach and primary data collected through structured questionnaires. Using robust multiple linear regression analysis in Stata 18, the findings established that credit appraisal management practices (β = 0.380, p = 0.001), collateral management practices (β = 0.373, p = 0.003), and loan recovery management practices (β = 0.312, p = 0.019) positively and significantly influenced mortgage loan performance. Conversely, loan monitoring management practices (β = −0.381, p = 0.001) had a negative and statistically significant effect, suggesting that intensified monitoring was more prevalent in mortgage portfolios already experiencing elevated credit risk. The study concludes that effective credit appraisal, collateral management, and loan recovery practices are important for improving mortgage loan performance and recommends strengthening borrower appraisal and collateral management systems, adopting proactive loan monitoring mechanisms, and reinforcing structured loan recovery frameworks to improve mortgage portfolio quality and reduce non-performing mortgage loans.