An investigation into the determinants of credit card default in Kenya (a case of the imperial bank limited)

Abstract

Credit riskis important to any financial institution as the aim is to reduce the risk of non payment by ensuring efficient collection of customer's payments. This study analyzes the factors that determine the default of credit cardholders in ImperialBank based on a sample of cardholders. Secondary data comprising 50 defaulters and 50 non defaulters was collected from applications and customer's statements for the period of one year. Analysis was done on the scoring of cardholders and their subsequent performance in relation to the following variables: gender, age, income, marital status, number of credit cards held, area of residence, type of employment, home ownership, percentage of limit utilized, payment pattern, number of cash withdrawals, percentage of amount due paid, card limit and number of dependants. The performance of the cardholders in relation to each of the variableswas assessed. Currently Imperial Bank usesa scorecard where the variables are based on the applicant's personal information. It is important for the bank to give the variables weights with emphasis on: cash advances, limit utilized, age, income and type of employment as identified by the study