The Effect of Credit Reference Bureaus on the Level of Non- Performing Loans in the Commercial Banks in Kenya
Abstract
Lending is the main activity of commercial banks in Kenya. However, Non-Performing
loans have caused significant losses to the banks. As a result of the banking failures
experienced in Kenya and to find a way forward to prevent further failures, the Credit
Information Sharing mechanism was launched in Kenya and banks were required to share
their defaulters’ data to the bureau. This study was guided by objective that sought to find
out the effect of credit reference bureaus on the level of nonperforming loans in
commercial banks in Kenya.
Secondary data was collected from published financial statements of commercial banks
in Kenya between years 2007 to 2012. The researcher adopted an event study design and
regression analysis method and the study was carried out on the 42 operational
commercial banks. The researcher used t-test to analyse the data and the null hypothesis
was: there is no positive significant effect of credit reference bureaus on the level of nonperforming
loans in commercial banks in Kenya
The study found that CRBs had an effect on NPLs; there was an average reduction of 4%
on the level of NPLs in the years after the introduction of CRBs i.e. 2010-2012 and the
null hypothesis was rejected; there was positive significant effect of CRBs on the level of
NPLs. The study also concluded that there is an inverse relationship between the number
of credit checks done by the CRBs and the level of NPLs. Therefore, the use of credit
reference bureaus by commercial banks in Kenya was found to be value additive and did
indeed reduce the level of NPLs in commercial banks in Kenya.
Citation
Degree Of Master of Business Administration (MBA)Publisher
University of Nairobi School of Business
Description
A research project presented in partial
fulfillment of the award of Master of Business
Administration, School Of Business, University of
Nairobi