The relationship between techniques for managing non performing loans and the level of nonperforming loans of commercial banks in Kenya

Abstract

It is argued that non-performing loans are one of the major causes of banks failure and hence economic stagnation. In response to the problem of non-performing loans, banks have to adopt effective management techniques for non performing loans. This study sought to establish the relationship between techniques for managing non performing loans and the level of non performing loans of commercial banks in Kenya. Causal design was chosen as the study sought to establish the relationship between techniques for managing non performing loans and level on non performing loans of commercial banks in Kenya. Causal design was chosen because it enables the researcher to generalise the findings to a larger population. The population of this study consisted of all the forty three commercial banks in Kenya. Primary data was collected using structured questionnaires while secondary data was collected from journals, magazines and banks’ annual reports. To enhance reliability of data, test-retest method was used by administering questionnaires twice to the same respondents. The research used both quantitative and qualitative data and statistical package for social sciences (SPSS version 17) package was used for data analysis. Regression analysis was used to establish the relationship between techniques for managing non performing loans and the level of non performing loans of commercial banks in Kenya. The study concludes that effective management of non performing loans in commercial banks helps to improve the financial performance of banks as interest on loans is the biggest income of banks and increases the liquidity position of banks, helps in protecting the banks reputation and reduces loan losses and leads to quality of loan portfolio for better return to the shareholders and it reduces time wastage on unproductive resources being diverted towards loan recovery whereby such resources can be channelled to other more productive areas.