Effect of relationship management practices on loan portfolio performance of commercial banks in Kenya

Abstract

Relationship Management is heralded as one of the strategies that have enabled business organizations to achieve greater feats. However, despite the intense growth in the practices by banks, reports indicate that there are doubts about the effectiveness of relationship management practices in enhancing banks' performance thereby calling for the need to establish the usefulness of relationship management practices embraced by banks. The general objective of this study was to establish the effect of relationship management practices on loan portfolio performance of commercial banks in Kenya. Specifically, the study examined the influence of complaints management, communications management, customer loyalty programs and personalized customer services on loan portfolio performance of commercial banks. The study was anchored on three theories; the institutional theory, the relationship management theory and the financial intermediation the01y. Using a descriptive research design, the study targeted seven Tier 1 commercial banks in Kenya with bank employees drawn from customer care, sales and marketing, and loans and credit departments from the headquarters. The study used a purposive sample to select 124 respondents for the study. Data analysis was conducted using descriptive analyses which were done by use of SPSS version 23 .0. The study established that complaints management, communications management, customer loyalty programs and personalized customer services all have an effect on loan portfolio performance of commercial banks. The study concludes that relationship management practices have significant effect on loan portfolio performance of commercial banks. The study recommends that management of the commercial banks should consider implementing relationship management practices as a critical determinant of their portfolio performance.