Effect Of Credit Information Sharing On The Financial Performance Of Commercial Banks In Kenya

Abstract

Credit information sharing is a mechanism that allows credit institutions like the banks and credit information providers like credit reference bureaus to share any information pertaining to debtors‟ performance as far as credit matters are concerned. The study sought to determine effect of sharing of credit information on banks‟ performance in financial perspective. The research utilized a descriptive research design. For this research all 43 commercial banks licensed under the banking Act as at 31 December 2015 in Kenya form the target population. A census approach was employed since the number of banks are only few. Secondary data was used in this study. The data was collected from CBK annual supervision reports and the banks specific audited accounts. The study used Statistical Package for the Social Sciences (SPSS) to run a regression model that was used to determine effects of sharing of credit information on banks‟ performance in financial perspective. The study established an insignificant negative relation between credit information sharing assets quality and banks‟ performance in financial perspective. Results also found a negative but significant relation between capital adequacy and financial performance and an insignificant positive relation between liquidity and banks‟ performance in financial perspective. The study concluded that failure to share credit information increases credit risk, which in turn reduces banks‟ performance in financial perspective. The study recommended that management of commercial banks in Kenya should set up appropriate mechanisms to share credit information so hence to reduce credit risk and enhance their performance in financial perspective.