The Effect of Macroeconomic Variables on the Level of Non-performing Loans in Saccos in Kenya
Abstract
The goal of study was to determine the impact of macro-economic components on levels
of NPLs in SACCO sector in Kenya. Moral hazard theory together with the asymmetric
information theory informed the study. This research work used a descriptive design that
gave the examiner the ability to designate the various variables being evaluated.
Aggregate data was acquired for the entire SACCO sector. Information on
unemployment, income per capita and was retrieved from KNBS while the interest rates
over the period of interest were retrieved from the Sacco Societies Regulatory Authority.
Exchange rate data were gathered from reports by the Central bank of Kenya. SPSS
version 20 was employed in the analysis of data and the results were presented using
percentages, frequencies, and tables. A multiple regression model assisted in describing
the effect of macroeconomic variables on levels of NPLs in the SACCO sector in Kenya.
The researcher revealed that an increase in interest rate while holding all the other factors
constant would result in a decrease in non-performing loans of SACCOs. Further, it was
noted that unemployment rate had significance and positive effect on non-performing
loan of SACCOs. Findings from regression model also uncovered that that Exchange
Rate had a positive significant influence on non-performing loans of SACCOs hence a
unit increase in Exchange Rate while holding all the other factors constant would result
into an increase on non-performing loans of SACCOs. A unit increase on Income Per
Capita while holding all other factors constant would cause an increase in nonperforming
loan of SACCOs. The study recommend that management in SACCOs should
consider employment status of their customers as high rate of employment would result
to high rate of salary which empowers customer to honor their obligation to pay back
their loan hence reduces occurrence of nonperforming Loan as, without salary, loans
could not be paid and therefore when unemployment rate is high, NPLs increase. The
study recommends the government to ensure a stable economy and institute policies to
ensure that the economy is growing to reduce non-performing loans of SACCOs. This
study furnishes SACCOs with critical information that can empower credit managers to
conduct risk assessment more effectively and with prudence. It is also meant to spur
delight in further research on risk management. This study furnishes SACCOs with
critical information that can empower credit managers to conduct risk assessment more
effectively and with prudence. It is also meant to spur interest in further research on risk
management.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1411]
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