The Relationship Between Credit Information Sharing, Loan Book Size And Non Performing Loans Of Commercial Banks In Kenya

Abstract

Commercial banks share information as a credit risk mitigation measure. Theory predicts that information sharing among lenders attenuates adverse selection and moral hazard, and can therefore increase lending and reduce default rates. The main objective of the research study was therefore to establish the relationship between credit information sharing, loan book size and non-performing loans of commercial banks in Kenya. The study applied a descriptive research design and the target population was 43 commercial banks. The study applied census survey and 21 commercial banks responded to the questionnaires fielded. Both primary and secondary data were used in the study. The study used multiple linear regression equation and the method of estimation was Ordinary Least Squares (OLS) so as to establish the relationship between credit information sharing, loan book size and non-performing loans. The study found out that (33%) of the banks have been using CRB between 1-2 years, 24% (3-5) years over 5 years, and 10% were not using CRB. The study found that variation in the non perfoming loans of commercial banks in Kenya could be accounted to changes in credit information sharing, loan book size and size of the bank. The study revealed that there is a positive relationship between non-performing loans of commercial banks and loan book size, the study further revealed that there was a negative relationship between credit information sharing, size of the bank and non-performing loans. The study recommended that CBK puts into place policies to ensure that it is mandatory to use credit reports for every borrower. CBK should also increase the scope of CRB‟s to other organizations like Sacco‟s and other MFI‟s. Commercial banks should also use the information provided by CRB effectively to lend to potential borrowers.