The Impact of Non-performing Loans on the Lending Behaviour in Kenyan Commercial Banks

Abstract

Non-performing loans have posed many challenges to lenders and more so commercial banks all over the world in their quest to act as financial intermediaries. In Kenya, different participants in the monetary sector have come up with innumerable ways of lessening nonperforming loans including introduction and accreditation of credit reference bureaus. This study centers on impact of nonperforming loans on lending behaviour in Kenyan commercial banks. The study utilized secondary panel data gathered out of38 commercial banks for one decade (2008-2017). In order to avoid endogeneity problem, Generalized Method of Moments (GMM) tack has been utilized for estimation. The empirical findings show that nonperforming loans positively impact the lending behaviour in Kenyan commercial banks. For the control variables, GDP, inflation and capital adequacy positively impact lending behaviour. Therefore, emanating from these findings, the enquiry proffers that commercial banks pursue strategies designed to reducing unhealthy loans