Credit Risk Management and Financial Performance: Evidence from Deposit-Taking Savings and Credit Cooperative Societies in Kenya.

This study investigates the effect of credit risk management on the financial performance of deposit-taking Savings and Credit Cooperative Societies (DT-SACCOs) in Kenya. The study was motivated by the increasing exposure of SACCOs to credit default risks, which continue to affect their profitability and sustainability. Credit risk management was assessed using three core dimensions: risk identification, risk analysis, and risk control, while financial performance was measured using return on assets (ROA). Anchored on the Modern Portfolio Theory and supported by Merton’s Default Risk Theory, the study adopted a descriptive cross-sectional design targeting all 176 licensed DT-SACCOs in Kenya. Primary data were collected from credit risk managers, while secondary data on ROA were obtained from audited financial statements covering the period 2017 to 2022. The results revealed that credit risk management has a significant positive effect on financial performance. Each of the three components—risk identification, risk analysis, and risk control—was found to significantly enhance ROA. The findings underscore the importance of robust credit risk management systems in strengthening the financial viability of SACCOs. The study recommends the adoption of proactive risk management practices to safeguard member deposits and improve overall institutional performance