Determinants of Loan Volumes Among Commercial Banks in Kenya

Abstract

Various factors, theoretically, influence the loan volumes among banks. These factors include interest rates, bank size, credit risk, liquidity and volume of deposits. Other factors are borrower’s characteristics such as gender, age, wealth, experience and credit history, risk profile, earnings and business experience, and finally loan characteristics, such as loan amount, maturity, interest rate and collateral offered. This study sought to establish determinants of loan volumes among commercial banks in Kenya. 43 commercial banks in operation in Kenya as at 31st December 2018 were the population of the study. Data from 38 banks was availed for the study which was 88.37% response rate. The predictor variables were interest rates, bank size, credit risk, liquidity and volume of deposits. Loan volume was the dependent variable. Secondary data was acquired for 5 years (January 2014 to December 2018) on an annual basis. Research design was descriptive cross-sectional design whereas association between variables was determined by multiple linear regression model. SPSS version 22 was used in data analysis. An R-square value of 0.830 that can be translated to mean 83% of the variations in loan volumes among banks in Kenya can be related to the five chosen predictor variables whereas 17% in the changes of loan volumes among banks was linked to other variables that did not form part of this study. From the study it was further revealed that the predictor variables strongly correlated with loan volumes (R=0.911). ANOVA revealed that the F statistic showed significance at 5% level with a p=0.000. Henceforth, the model was appropriate in providing an explanation of the relationship between the variables. Additionally, results demonstrated that bank size, liquidity and volume of deposits were positively and statistically substantial values in the study. Credit risk was found to have a negative but not statistically significant influence on loan volumes. The study further found that interest rates have a statistically insignificant influence on loan volumes among banks. The recommendation is that measures should be set up to increase bank size, liquidity and volume of deposits as these three have a significant influence on loan volumes.