Kamau John G., Wagoki Juma
Abstract: Debt is a two-edged sword. When employed wisely and in moderation it enhances peoples welfare. On the other hand, when used imprudently and in excess, the result can be disastrous. Bad debts (or loans) are said to be dependent more on the industry performance than other sectors of the economy. One of the primary roles of commercial banks is to advance loans to their customers. However, not all borrowers honour the agreement between them and the banks on loan repayment. As such, they end up defaulting on loan repayment and the banks concerned suffer financially. The main objective of the study was to establish the effect of strategic management practices on loan recovery by commercial banks in Kenya. Specifically, the study sought to establish the effect of debt collection strategies on loan recovery in Family Bank Limited. The study was limited to Family Bank Limited, Nairobi Region. The study adopted a cross-sectional survey design. The target population comprised of 73 credit and 88 management staff of Family Bank Limited working in the banks branches in Nairobi Region. A sample of 62 respondents was derived from the target population using Nassiumas formula. The respondents were selected using stratified random sampling method. A structured questionnaire was used to collect data from the sampled respondents. A pilot test of the instrument was conducted prior to the ultimate study in order to assess the reliability and validity of the instrument. Both descriptive and inferential analyses were carried out with the aid of the Statistical Package for Social Sciences tool. It was established that, debt collection strategies influenced how the bank recovered loans. The relationship between the aforementioned variables was established to be statistically significant. It was as such concluded that collection strategies are fundamentally important to the recovery of loans and bad debts by commercial banks in Kenya. It is recommended that, commercial banks need put in place to formulate and implement strategies that can enhance more efficient and cost-effective recovery of loans. All commercial banks are further advised to put in place strategic debt monitoring strategies that will enhance recovery of loans. Scholars in the field of strategic management and financial management are recommended to conduct further studies on how strategic management practices affect recovery of bad debts in other firms such as SACCOs and microfinance institutions.
Keywords: Bad debts, credit risk, doubtful debts, debt collection strategies, loan recovery, strategic management practices