The effect of non-performing loans the financial performance Of commercial banks in Kenya

Abstract

This study was carried out with objective of finding out whether the commercial banks in Kenya have had their profitability impacted significantly by non-performing loans. The findings were that although banks are impacted by non-performing loans (which form part of their expenses), the impact were not adverse enough to affect the growth of the return on assets negatively. What this simply meant was that in Kenya, as banks continued to increase their non-performing loans, it resulted in increase in the loan book. Simply put, it seemed that non-performing loans was an inevitable price to pay for increase in the loan book and the returns thereof. Commercial banks in Kenya should focus more on reducing the level of non-performing loans in their portfolio so as to reverse the current status quo where as non-performing loans seem to be moving in the same direction as the loan book. The increase in the loan book for most banks and consequently the growth in profitability was attributed to the considerable economic growth noted in the African economy which has strengthened the development of many sectors in the economy mainly as a result of increased investor confidence on the future of the African market.