Relationship Between Information Sharing and Levels of Non-performing Loans in Commercial Banks in Kenya
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Date
2011Author
Kinyanjui, Edward K
Type
ThesisLanguage
enMetadata
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ABSTRACT
This study set out to establish the relationship between information sharing and levels of
non-performing loans in commercial banks in Kenya. In Kenya there exist two licensed
Credit Reference Bureaus that facilitate sharing of information. The type of information
shared for clients are both negative and positive; however it is not clear on the efficacy of
these two bodies in fulfilling their goals. This study thus set out to explore the problem of
non-performing loans in commercial banks due to asymmetric sharing of information on
clients' specifically, on defaulted loans, total arrears and total loan exposures. Theories
predict that information sharing among lenders attenuates adverse selection and moral
hazard and can therefore increase lending and reduce default rates.
Limits to information-sharing on the financial history of borrowers exist mainly because
of credit institutions fear of competition. Poor loan quality has its roots in the
informational challenges which afflict financial markets where developing economies are
the worst affected. The study used causal relationship design while the population
constituted registered and operational commercial banks as at 31st December 2004
licensed to carry out banking business under the Banking act Cap 488 Part II Sec (4) (5).
The research study utilized both secondary and primary data. Quantitative data on nonperforming
loans for the commercial banks was extracted from annual reports, profit and
loss accounts, balance sheets and cash flow statements. A period of one year was
considered (2010).These statements were obtained from the commercial banks, published
financial statements from local newspapers as well as from Kenya institute of bankers
Association offices. These sources were preferred as they were authoritative. Data on
information sharing credit was obtained through the use of questionnaires that were
directed to commercial banks in Kenya. The questionnaires were administered to staff in
credit departments. The questionnaires consisted of both closed and open ended questions
and were dropped to be picked later. The questionnaires were coded in the Statistical
Package for Social Sciences (SPSS) computer software for analysis of responses and a
report on the findings was written. The study concludes that, sharing of clients'
information among commercial banks and individuals helps reduce the level of nonperforming
loans advanced by commercial banks.
Publisher
University Of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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