Factors Affecting The Supply Of Housing Credit: A Study of Financial Institutions
The main objective of this study was to determine the factors that determine the supply of housing credit in Kenya. It particularly focused on the effect of firm level and macroeconomic factors on the supply of housing credit. The firm level factors included profitability (ROA), liquidity (capital-asset-ratio), and deposit liability. The macroeconomic factors/ variables included lending interest rate, GDP growth, and inflation rate. Housing credit supply was proxied by mortgage provided by all the 43 commercial banks in Kenya for the period 2005 to 2014. The study used panel data, which was analyzed using the Fixed Effects Model (FEM), Random Effects Model (REM), and General Method of Moments (GMM). In the fixed effects and random effects model, liquidity and deposits had a positive and statistically significant relationship with housing credit supply. Inflation rate had a negative and significant relationship with housing credit supply. However, GDP growth and profitability had no statistically significant relationship with housing credit supply. In the GMM, liquidity and deposit liabilities had a positive and statistically significant effect on the supply of housing credit. Profitability (ROA), on the other hand, had a negative and statistically significant relationship with housing credit supply. Interest rate had a positive relationship with credit supply. However, inflation rate had no statistically significant relationship with housing credit supply. This implies that firm level factors had the greatest influence on the supply of housing credit. Based on these findings the study recommends that the Central Bank should focus on enforcing appropriate minimum capital requirement to ensure that banks are stable. The resulting improvement in savers and investors’ confidence will increase deposits, which will in turn increase housing credit supply. Banks should also incentivize the public to save by reducing interest rates spread. The government should also improve regulation of the banking industry to ensure that deposits are safe in financial institutions. This will improve access to funds, thereby increasing housing credit supply.
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