Responses of commercial Banks in Kenya to the challenge of loan defaulting
Abstract
Loan defaulting has been and continue to be a big threat to the banking industry both locally as
well as globally. Many banks have sought to find ways of dealing with this threat but in vain. It
is this threat that this research sought to unravel by studying the challenges that the banking
industry face with regard to loan default. The research sought to further look at how the banking
industry in Kenya respond to the challenge of loan defaulting. The two issues above set up the
cornerstone of the research objectives for this study. The survey instruments targeted the entire
banking fraternity with a random sample of 22 banks out of the 43 commercial banks currently in
the republic. Data was collected through the use of questionnaires which had both Yes/No as
well as multiple choices. A response rate of 82% was received from the number of
questionnaires issued to respondents. Data analysis employed the use of percentages and tables
for collation and summarization of data gathered.This research found out that the main challenge that banks face in light with loan defaulting was
loss of funds lent to the borrowers. Other challenges which were of notable mention were;
accountability to stake holders of monies lent, liquidity problems among others. The data
indicate that many banks do not face serious problems with Central bank of Kenya. The research
further found out that banks employ many response mechanisms to curb loan defaulting. Of
notable importance was use of credit reference bureau 82% of the respondents, use of stringent
legal action, auction of security collateral, employment of technology when rating loans, offering
of secured loans among other measures. The study established that there is a significantly regulatory role which needs to be played by
Central Bank of Kenya (CBK), Kenyan Parliament, and use of information technology. In
addition, it was found that there is need to make public asset as well as liability declaration
mandatory to all civil servants as well as cabinet ministers to curb political lending. The research
further established that integrity is vital in the banking industry and that each bank offering loans
should ensure it sets up a credible and well equipped loan processing department. The research
takes cognizance to the fact that in order to arrest the menace of loan defaulting, there is need to
have a concerted effort among all the stakeholders in the industry.
Publisher
College of Humanities and Social Sciences, University of Nairobi
Description
MBA Project