Effects of Credit Information Sharing on Non-performing Loans of Commercial Banks in Kenya

Abstract

Credit information sharing schemes help financiers in identifying the defaulters through accessing the clients’ credit status as the information concerning a client is readily available through the credit bureau (CB). This study aimed at determining the effect of credit information sharing on non-performing loans in commercial banks in Kenya. A descriptive design was the preferred method as all the 43 commercial banks in the country.The preferred method of data collection was through secondary sources. An event study methodology was applied and also descriptive statistics like the mean for data analysis. Credit information sharing was compared with non-performing loans ratio 7 years before and 7 years after credit information sharing. The findings established that the t statistics for NPLs before CIS and NPLs after CIS was significant hence an indication that there was a significant positive variation in the level of nonperforming loans before and after credit information sharing. Additionally, the results revealed that t statistics value for ROA before CIS and ROA after CIS was insignificant hence an indication of no significant variation linking credit information sharing and ROA. The results also revealed the t statistics value for ROE before CIS and ROE was insignificant hence an indication that there is no significant variation between credit information sharing and ROE. It concluded information sharing significantly influences non-performing loans among commercial banks in the country but credit information sharing does not influence the profitability of commercial banks in terms of ROA and ROE. The study recommended that management of commercial banks to continue sharing credit information in order to reduce the level of nonperforming loans