The Relationship Between Macroeconomic Factors and the Level of Nonperforming Loans in the Banking Industry in Kenya
View/ Open
Date
2013-11Author
Orenge, Everlyne O
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
Considering that the banking industry is the backbone of the Kenyan economy, and that it
is a critical vehicle that links the Kenyan economy to the rest of the world, it is important
to understand the relationship between macroeconomic factors and the level of
nonperforming loans in the banking industry in Kenya. High levels of nonperforming
loans can lead to a banking crisis hence the need to understand how this level of
nonperforming loans may be affected by macroeconomic factors such as lending interest
rate, interest rate spread, inflation rate and real GDP growth rate. The objective of this
study was to find out the relationship between macroeconomic factors and the level of
nonperforming loans in the banking industry in Kenya.
A quantitative research design was adopted in the study. The population consisted of
forty three commercial banks and one mortgage institution licensed to operate in Kenya
as listed by the Central Bank of Kenya. Secondary data for the banking sector as a whole
was collected for gross loans, gross nonperforming loans, average lending interest rate
and average interest rate spread for a ten year period from 2003 to 2012. Annual data on
average inflation rate and real gross domestic product growth rate for the ten year period
was also collected. Statistical analysis was then done using SPSS analytical software.
The research findings established that there was a positive relationship between the
dependent variable (level of nonperforming loans) and interest rate spread and lending
rate as the independent variables with a correlation of 0.65 and 0.501 respectively. The
findings also established that there was no relationship between the dependent variable
(level of nonperforming loans) and inflation rate and GDP growth rate as the independent
variables whose correlation was 0.050 and (0.028) respectively. The researcher also
found that the model and individual variables were not significant implying there may be
no relationship between the level of nonperforming loans and interest rate spread, lending
rate, inflation rate and GDP growth rate. The researcher recommended that the
management of commercial banks should be careful when increasing the lending rate and
the interest rate spread since the researcher found it to have the greatest impact on the
level of nonperforming loans.
Citation
Orenge,Everlyne O.;November,2013.The Relationship Between Macroeconomic Factors And The Level Of Nonperforming Loans In The Banking Industry In Kenya.Publisher
University of Nairobi School of Business