The Impact Of The Credit Reference Bureau On Non- Performing Loans In Commercial Banks In Kenya
The objective of the study was to assess the impact of the credit reference bureaus on non-performing loans of commercial banks in Kenya. The research Therefore, set out to answer the question: What is the impact of introduction of CRB on non-performing loans in commercial banks? Loan delinquencies arise due to debt default. Debt default threatens the soundness of financial systems of any economy and specific banks. They also constitute a potential source of systemic failure of the particular financial systems as well as of the global financial system. Systems that mitigate debt default are necessary for any financial system. In the recent past, the banking sector in Kenya was saddled in a momentous non-performing loans (NPLs) portfolio. This invariably led to the collapse of some banks. Secondary data were collected from the financial statements of the commercial banks over the period of study. A discriminant analysis was conducted using discriminant analysis to predict whether the use of Credit reference Bureau by commercial banks has any impact on Non-performing loans. The predictor variables were, NPL/Advances, advances/Deposits and Return on Assets for both periods. The log determinants for the periods were different thus explaining the impact of the credit reference bureau on non-Performing loans. The research findings tell us that the use of credit reference bureaus has an impact on non-performing loans banks should implement in their lending policies the use of the credit reference bureaus in making credit decisions as well as recovery of bad debts. The Credit reference bureaus have a positive impact on the reduction of non- performing loans and therefore their use should be adopted by all banks and other lending institutions like Saccos in order to curtail the serial defaulters. Since the introduction of the CRB‟s in 2008, banks have been able to reduce the level of non-performing loans to advances ratio compared to the periods prior to 2008. The regulator of the financial institutions that is the central bank should enact policies that guide the use of the credit reference bureau information by banks as well as the consumers. There also needs to be an elaborate effort to educate the public on the importance of paying debts, the impact that bad information has on one‟s financial status as well as the effect of good information.
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