Effect of Non-performing Loans and Financial Performance of Commercial Banks in Kenya

Abstract

Evaluating the effect of non-performing loans on Kenyan commercial banks' return on assets was the aim of the study. The high rate of non-performing loans (NPLs) has hurt Kenya's banking sector, making it financially unstable and endangering its capacity to compete in the market. This study examined the repercussions of this situation. Data collection from 42 Kenyan commercial banks using a descriptive approach was the aim of the study. To analyze the data, the study used both descriptive and inferential statistics. All of the targeted commercial banks provided secondary data for the study, which had a 100% response rate. The findings demonstrated that the model was statistically significant and could explain roughly 69.2% of the total variations in ROA among Kenyan commercial banks. Additionally, the study found that non-performing loans had a significant and unfavorable influence on commercial banks' financial performance, even after adjusting for other characteristics. Financial success was also positively and significantly impacted by the company's size. Finally, banks' financial success is positively and significantly impacted by capital adequacy. This suggested that every element of the research was a reliable indicator of Kenyan commercial banks' return on assets (ROA). The statistical significance of the model (F=28.516, P=.000) showed that it was reliable for making predictions.