Credit Risk Identification and Asset Quality of Commercial Banks Listed at the Nairobi Securities Exchange, Kenya

Purpose: Lending remains the core activity of commercial banks, and subsequently the largest source of credit risk. For that reason, mitigation of credit risk exposure is vital for going-concern purposes. This study sought to establish whether there exists a relationship between credit risk identification and the asset quality of commercial banks listed at the NSE in Kenya. The theory that the study anchored upon was asymmetric information theory. Methodology: The study used a descriptive research design. The population of the study was drawn from the 11 commercial banks listed at the NSE in Kenya. The study was conducted through a census. Secondary data for a year between 2015 and 2024 was utilized to collect financial information from the bank’s annual reports, CBK and the KNBS and financial statements for analysis with the aid of a secondary data collection sheet. Data was analyzed using descriptive and inferential statistics. Findings: The study revealed that credit risk identification had a significant positive effect on the asset quality of commercial banks listed at the NSE, Kenya. Unique Contribution to Theory, Practice and Policy: In this regard, the study recommended that commercial banks in Kenya should consider using financial forecasts and budgets to investigate and evaluate the credit status of firms to identify possible risks and future exposures. The study recommends analyzing the borrower's industry, market position, and economic circumstances as part of the market assessment process. The study recommends further research by examining Basel 11 and Basel 111 effects on asset quality to establish whether it help in improving the credit risk identification for commercial banks.