The relationship between loan policy and financial performance of commercial banks in kenya.

Nature of loan terms and conditions have a large effect on the bank's competitiveness, the \nloan policies a bank adopts affect the volume of loan applications \nthat a bank attracts ( \nSaid \nand Mohd, 2011). \nThe nature of the credit policies adopted by the banks influence the \nvolumes of the loans procured by the banks and thus the competitiveness of the bank in \nlending and thus the performance in the industry ( \nSangmi \n, 2010). \nThe study sought to answer \nthe following research questions; what are the loan policies adopted by Commercial Banks’ \nin Kenya? What is the relationship between loan policy and financial performance of \ncommercial banks in Kenya? \nThis study adopted \na descriptive survey research design. The target population of this study \nwas all the 43 commercial banks in Kenya (CBK, 2012). The sample size for the study was \n13 commercial banks. Stratified random sampling technique and simple random sampling \ntechniqu \ne were used to obtain a sample size of 13 commercial banks. The secondary data was \ncollected from the published annual reports spanning five years (2009 \n- \n2013) for the sampled \ncommercial banks. Regression analysis was used to test the relationship between l \noan policy \nand financial performance of commercial banks in Kenya. \nFrom the findings, the \nprovision \nfor bad and doubtful debts \nwas positively related to \nthe \nfinancial performance of the Kenyan commercial banks. Declining \nloan default rate \nsignificantly en \nhanced the financial performance of the Kenyan commercial banks. \nCollateral \nsignificantly enhanced the financial performance of the Kenyan commercial banks. \nThere is a \npositive relationship between loan policy and \nfinancial performance of the Kenyan \ncommer \ncial banks \n. \nThe management of \nthe commercial banks \nshould institute strict loan recovery measures in \norder to reduce the amounts spent on \nprovisions for bad and doubtful debts \n. This would in \nturn increase the banks’ interest earnings on loans, significantl \ny enhancing the financial \nperformance of the commercial banks. \nThe management of \nthe commercial banks \nshould \nconduct due diligence of its clients to correctly establish capacity of the customer to repay. \nThis will in turn grow the banks’ performing loans t \nhereby further enhancing their financial \nperformance