| dc.description.abstract | Non-performing loans (NPLs) are not only argued to adversely affect the financial
performance of financial institutions, but they also have other far reaching implications.
This is due to the fact that, other potential borrowers may fail to access credit facilities
since part of the funds that could be extended as loans by financial institutions are still
tied to Non-performing loans. Banks in Kenya have had a high rate of loan default from
the borrowers which have caused significant losses to the banks in terms of interest
income. Weak net interest income is of particular concern for the long term viability of
commercial banks. The heart of the banks’ business model is lending to local businesses
and households, which makes net interest income the largest source of core operating
revenue. This study was therefore guided by objective that sought to; determine the effect
of non-performing loans on the interest income of commercial banks in Kenya. Data was
collected from secondary sources such as published financial statements of commercial
banks between years 2011 to 2014. The researcher adopted a descriptive research design
and data was analyzed using quantitative methods. Non-performing loans have been
found to influence banks annual interest on income which in turn results to poor financial
performance by commercial bank institutions in Kenya. Credit reference bureaus were
introduced and have significantly resulted to reduction levels of non-performing loans. It
has been however noted that increase in the rate of non-performing loans increases risks
of banks being put under statutory management. Computed MLR statistics showed that
93.3% of interest on income was directly influenced by increase in non-performing loans
rate. This showed that performance of commercial banks relied on the total interest rate
paid through loans. | en_US |
