Determinants of Non Performing Loans Among Commercial Banks in Kenya

Abstract

This study sought to determine the relationship between Non-performing Loans and its determinants among Commercial Banks in Kenya. The research methodology used was a Descriptive survey design and the population of study was all Commercial Banks in Nairobi region. Data collected was edited for accuracy, uniformity, consistency and completeness and arranged to enable coding and tabulation for final analysis. The study also used multiple linear regressions to analyse the data. The study found out that a number of determinants affected loan defaults among them level and sources of income was the greatest. Poor credit analysis did have a significant impact on loan defaults as well as a loanee’s commitment to loan repayment. Rate of interest, loan repayment periods, type of loans also contributed to loan defaults. Character of a loanee was most considered when appraising loan applications being one of the characteristics included in the credit scoring card. As a result, it was clear that all banks loan books contained a significant level of non- performing loans. The study recommends that Commercial Banks should put more emphasis on implementation of credit risk management techniques and further research to be done on whether collateralized assets are less risky as compared to non-collateralized assets.