Can Financial Technology Transform Credit Risk Management? Evidence from Kenyan Commercial Banks

Abstract

The main aim of this study was to examine the extent to which financial technology adoption transforms credit risk management in Kenyan commercial banks. The study was anchored on the Theory of Financial Innovation. The study adopted a correlational research design. The study targeted a population of 37registered commercial banks in Kenya using a census sampling technique to gather all the necessary data from the entire population. A balanced panel of secondary data from the published audited financial statements for the period 2018 to 2023 was used. The collected data was subjected to a diagnostic test before applying regression analysis. The data was analyzed using EViews-12 Statistical Package, and descriptive statistics were computed to determine data characteristics, and multiple regression was used to test and report hypotheses. From the regression results, financial technology explains 82.58% (adj R²=0.8258, p=0.000) of variance in credit risk performance. The regression coefficient revealed (β= -0.002521, P=0.7068), showing that a unit increase in financial technology would lead to a 0.2521% insignificant decrease in credit risk performance. Therefore, the null hypothesis failed to be rejected. The study finally concluded that financial technology is found to have an insignificant relationship with credit risk performance in Kenyan commercial Banks. The study recommended that commercial banks’ management should be deliberate in accelerating a complete digital infrastructure that supports the banking process from start to end and should reduce partial implementations. Commercial bank managers should also set up technological adoption policies that align with the sector regulatory framework to avoid investing in a technological environment that has no impact on credit risk management. The study also recommended that the Central Bank of Kenya set up a digital infrastructure standardization policy to support technological adoption that can produce an impactful credit risk assessment.

Keywords: Financial Technology, Credit Risk Management, Kenyan Commercial Banks

DOI: 10.7176/RJFA/16-7-06

Publication date:September 30th 2025