The Relationship Between Related Party Lending And Profitability Of Commercial Banks In Kenya

Abstract

Commercial banks play predominant role in credit expansion and granting credit facilities. Banks can advance credit to various types of parties who are closely engaged like; majority shareholder, joint associates, simple investments as well as the top-level management. However, problem exists when these parties access these funds at rates which are lower than the set market rates. In addition, insiders who the loans have been advance to sometimes are not given a specified period under which to repay the loans which is not the case to the outsiders. The target of this exploration was to decide the connection between related gathering loaning and productivity of business banks in Kenya. This examination utilized an illustrative research configuration to build up relationship connecting related gathering loaning and productivity of business banks in Kenya. The number of inhabitants in this examination involved all the 40 business banks in Kenya as at 31st December 2017. The examination utilized auxiliary information since optional on budgetary execution of business banks in Kenya is promptly accessible from the bank's money related reports. The recovered information was gotten for a time of multi-year from 2013 to 2017. Connection and numerous relapse investigation procedures was utilized to evaluate the quality of affiliation and connection between the factors individually. The outcomes uncovered that related gathering loaning had a negative and factually immaterial association with money related execution of business banks in Kenya while credit hazard had a negative and a measurably huge association with budgetary execution of business banks in Kenya. The examination additionally uncovered that liquidity had a measurably irrelevant constructive outcome on budgetary execution of business banks in Kenya while capital ampleness had a negative yet factually huge association with the money related execution of business banks in Kenya. The examination presumed that related gathering loaning and liquidity don't impact budgetary execution of business banks and that credit hazard and capital sufficiency fundamentally influences business banks money related execution.