Capital Buffer, Credit Standards and Financial Performance of Commercial Banks in Kenya

Credit risk management is considered one of the more difficult banking industry activities, especially during periods of low growth. The research aims to examine the effect of credit risk management practice on commercial banks' financial performance in Kenya. These practices include capital buffer and credit standards. The research was built on Credit buffer hypothesis and shift ability theory. In this study, the causal research was employed. The mean and standard deviation were used to depict each variable in the study, and quantitative data was examined using descriptive statistics. Correlation statistics were used in this study to show the connection between the variables. The data analysis for the study was led by the multiple regression model. Regarding Capital buffer and credit standards the study found that they had significant effects to financial performance of commercial banks in Kenya. The researcher was able to conclude that proper capital buffer enhances financial performance of commercial banks in Kenya since it ensures that commercial banks have enough cash and resources at their disposal to ensure healthy business operations. It was also concluded that poor credit standards in the banking sector increases credit risk exposure to the commercial banks. According to the study, commercial banks should make sure that there is enough cash on hand to cover potential future possibilities and unforeseen circumstances. A properly managed inventory system is a very effective lever for increasing working capital management which becomes a strong capital buffer for commercial banks in Kenya. The issuance of loans and other financial assets that are known to often encourage defaults should be regulated by commercial banks in order to increase credit standards. In order to analyze their financial data on loan applicants, commercial banks should construct their internal credit risk assessment models to enhance credit standards