The effect of credit reference bureaus information sharing on non performing loans in commercial banks

Abstract

The study sought to establish the effects of credit reference bureaus information sharing on non-performing loans in commercial banks. This study adopted descriptive research design. The population for this study was all 44 commercial banks licensed in Kenya by the Central Bank of Kenya. The study used secondary data and was collected from previously collected data, general business publications, reports from and by financial institutions, CBK reports, census data from past record, library information and academic publications. Annual reports of the banks were analyzed for the period between 2010 and 2014, which is the study period of 5 years. The study used both quantitative and qualitative techniques to analyse data from the questionnaire. The quantitative data collected was analyzed by using Statistical Package for Social Sciences (SPSS version 22) and presented through percentages, means, standard deviations and frequencies. Multiple linear regression models were used in measuring each variable and this model. From the findings, the study concludes that CRB reports shared had a negative effect on non-performing loans. This is because Credit Information Sharing allows banks to better manage their credit risk and distinguish between good and bad borrowers. CRB reports has a great effect on non-performing loans since CRB reports enhance credit information sharing which reduces the extent of information asymmetry and reduce the number of the non- performing loans. Information sharing also reduces borrowers’ moral hazard. When customers expect that their borrowing delinquencies will be shared, this information pooling will lead to discipline on payment thus lowering delinquency rates and the level of NPLs. The study recommends that since credit reports shared is the main factor that affect non performing ration through credit information sharing the Government of Kenya through the Central Bank needs to publish the credit-information regulations and create awareness for the same so that lenders can submit credit information of their borrowers with the credit bureaus. Commercial Banks in Kenya should make more use of the CRB reports in their credit risk assessment so as to mitigate the extent of non-performing loans.