The Effect of Credit Information Sharing on the Non Performing Loans Among Commercial Banks in Kenya

Abstract

Commercial banks in Kenya have had a high rate of loan default from the borrowers which have caused significant losses to the banks. This is attributed to existence of information asymmetry where commercial banks have varied credit information and credit history about their borrowers. The credit seekers have taken this shortfall to get loans from different commercial banks which increases their rate of default because they might fail to service back all the loans. This study determines the effect of credit information sharing on the non performing loans among Kenyan commercial banks. The current study used data collected from secondary sources of published financial statements over the period of 2008 to May 2013 and employed a bivariate regression analysis. Data was captured and analyzed using SPSS. The results indicate a negative effect that is non performing loans tend to reduce with increase in credit information sharing. The results provide significant effect of credit information sharing on nonperforming loans. The results concur with literature which provides a positive effect of credit information sharing on non-performing loans, therefore Central Bank of Kenya and commercial banks through supervision and loan monitoring can reduce the level of non-performing loans by increasing credit information sharing by formulating rules and regulations to register more credit reference bureaus to enhance credit information sharing environment.