| dc.description.abstract | Liquidity risk is considered as one of the serious concern and challenge for the modern
era banks. A bank having good asset quality, strong earnings and sufficient capital may
fail if it is not maintaining adequate liquidity. Towards this end, the research sought to
establish the effect of non-performing loans on liquidity risk of commercial banks in
Kenya. The study was of value to various commercial banks in Kenya. This area of study
will add to the pool of knowledge on the under researched area of the Non-performing
loans in the banking sector. The literature review provided the reader with an explanation
of the theoretical rationale of the problem being studied as well as what research has
already been done and how the findings relate to the problem at hand. Research
methodology showed the data collection, analysis and presentation. The study adopted
correlation research design where data was retrieved from the balance sheets, income
statements and notes of 43 Kenyan banks during 2009-2013. Multiple regressions was
applied to assess the effect of Non-performing Loans on liquidity risk of commercial
banks in Kenya. The regression model treated liquidity risk as the dependent variable
while the independent variables were non-performing loans, capital adequacy, Size of the
bank and loan growth. The findings of the study show that non-performing loans has an
effect on liquidity risk among commercial banks in Kenya when banks with large capital
had higher level of non-performing loans. Capital adequacy was indicated to affect
liquidity of commercial banks when banks with large capital had little exposure to
negative liquidity risk. Loan growth was indicated to affect the level of non-performing
loans as commercial banks with higher loans growth had higher level of nonperforming
loans which exposed them to liquidity risks. Size of the bank was indicated to affect on
non-performing loans when large banks led high level of loans which exposes them to
liquidity risk. The study concluded that capital adequacy, nonperforming loans and loans
growth was found to have the most significant negative influence on liquidity risk and
size of the bank had the least positive effect on Liquidity risk. The study recommended
that banks should establish the required level of non-performing loans, capital adequacy
and loan book size which will help in reducing the liquidity risk. Commercial banks
should have a mechanism of identifying loan defaulters and take the necessary action
against them. It is recommended that banks increase their customer deposit base through
making the product accessible to more customers especially the low income earners who
have been neglected for a long time by the mainstream banks. | en_US |
