Effects of Macro-economic Variables on Nonperforming Loans of Commercial Banks in Kenya
Abstract
Macro-Economic variables greatly influence the economic growth. They deal with the
performance, structure, behaviour, and decision-making of an economy as a whole, rather
than individual markets. Non-Performing Loans allow the government to reduce the size
of transfers required to boost employment. The identification of needy firms and the
tailoring of subsidies to each firm losses means that non-performing loans require much
smaller transfers than either direct subsidies or low interest rate loans. The study thus
sought to establish the effects of macro-economic variables on non-performing loans in
commercial banks of Kenya. Taking a descriptive design, the study was based on a
population of fifteen banks out of the existing forty four commercial banks for the period
of ten years 2003-2012. Systematic random sampling was used to select the required
samples from the population, where secondary data was used as obtained from CBK
database as all banks are expected to file their annual financial results with CBK. The
research was both quantitative and qualitative in nature. Analysis was done with aid of
the statistical package for social sciences (SPSS) package. Descriptive statistics generated
such as percentages, mean scores and proportions were presented in tables and figures. .
It was found that a strong correlation existed between inflation and gross domestic
product and current account deficit. GDP also correlated strongly with inflation and
Money supply. CAD correlated strongly with inflation only while Money supply
correlated strongly with GDP. The study recommends that for a great economic growth,
there is need to mainstream these microeconomic variables for a better performing,
structurally viable and for effective decision-making of the economy as a whole, rather
than individual markets.
Citation
Degree of Master of Science in financePublisher
University of Nairobi School of Business
Description
A research project submitted in partial
fulfillment for the requirement of the degree
Master of Science in finance at university of
Nairobi.