Credit Officer Characteristics and Loan Delinquency in Commercial Banks in Uasin Gishu County, Kenya

Abstract

It is the intention of all commercial banks, just like any other business unit, to operate profitably and maximize the shareholder value. However, due to high number of non-performing loans existing as a result of the borrowers’ delinquency is challenging this goal in the banking industry. The high level of loan delinquency has greatly affected private investment and caused limitations in the scope to which banks offer credit to borrowers since banks need to compensate for loan delinquency losses. Therefore It is against this background that commercial banks need to address all factors that affect loan delinquency and it is out of this that the objective was to establish credit officer characteristic and loan delinquency in commercial banks in Uasin-Gishu County, Kenya. An individual bank success in management of credit risk is greatly seen in the percentage of loan delinquencies to gross lending. Therefore, internal and external environments are key drivers to occurrence loan default. The study applied census survey as the design of the research whereby the study consisted of all the 26 commercial banks in Uasin- Gishu County. The primary data was collected using questionnaires which were based on the research objectives and an analysis was performed on the collected data using SPSS application software. The presentations were done using tables and percentages. The findings were that sufficient level of competence among the loan officers is driven by the need to analyse a borrowers credit worthiness using different measures of screening and also to do effective follow up on the slow paying borrowers. Further, the loan officer is involved in the monitoring system that highlights repayment problems and is able to follow standard instruction with minimal supervision and this calls the competence level to be sufficiently high. The regression results reveal a strong positive correlation between the loan officer competencies and loan delinquencies. This shows that performance of loan delinquency is dependent on the competency of the loan officers. The study concluded that to manage delinquency effectively, it is important for banks to focus and understand in detail the internal sources of loan delinquency which they can easily control and find realistic and doable solutions to these problems. The study recommended that banks should imperatively look into the internal paradigm in order to improve loan delinquencies. The limitation of the study was the scope since only banks operating in one region was studied.