A survey of the causes of non-performing loans of commercial Banks in Kenya

Abstract

The purpose of this research was to investigate the causes of non-performing loans in Kenyan banks. The research questions used to guide the research included: 1. What are the causes of non- performing loans in Kenyan banks? 2. What specific steps have bank managers taken to deal with the problem of non-performing loans? 3. What is the level of success of the actions taken? This is an explanatory research that adopted the survey research design. Data was collected with the help of a questionnaire sent to 30 bank officers. The officials were purposively sampled from the ten leading banks ranked according to the value of their net assets as available from the Central Bank of Kenya listing. Recommendations of this study are that loan officials must grant loans basing their appraisal on loan analysis principles, using their discernment as well as experience to verify debtor credibility i.e., debt repayment ability, capital management and collateral suitability. More importantly, loan officials should strictly monitor and control how the loan is used in order to be able to promptly handle arising problems. The study found that the actions had proved useful in minimizing bad loans in the banks surveyed as reported by the credit managers. In addition, banks should continue to invest in the training of loans officials since most of the respondents confirmed that it was a new trend. The findings of this study will help the management in Kenyan banks to improve their management of non-performing loans. These study findings will encourage bank managers to participate more in policy formulation at the micro and macro levels as far as bad debt management is concerned and also to diversify banks investment portfolios. Other stakeholders such as researchers can use the findings as a basis for further research.