Relationship Between the Credit Risk Assessment and The Financial Performance of Tier-Two and Tier-Three Commercial Banks in Kenya

Abstract

This study examined the relationship between credit risk assessment and the financial performance of tier-two and three commercial banks in Kenya. The research adopted a cross-sectional design targeting 312 top-level employees from 30 tier-two and tier-three banks, with a sample size of 175 respondents selected through simple random sampling. Data were collected using structured questionnaires and analysed using descriptive and inferential statistics. The results showed that while credit risk assessment practices were generally in place, the correlation with financial performance was positive but statistically insignificant (r = 0.057, p > 0.05). This indicates that although credit risk assessment is important, it alone may not significantly influence financial performance unless combined with other credit risk management strategies. The findings suggest that banks should not rely solely on assessment but enhance other practices for improved financial outcomes.