The Effect of the Lending Policies on the Levels of Non-performing Loans (Npls) of Commercial Banks in Kenya

Abstract

Bank Lending policy is a statement of its philosophy, standards, and guidelines that its employees must observe in granting or refusing a loan request. These policies determine which retail or corporate clients the commercial banks approved for loans and which will be avoided, and must be based on the bank lending laws and regulations. The banking industry plays a major role in economic growth and development through provision of credit to execute economic activities. However, the major concern of any lender while advancing credit is how they will get their money back. Credit risk emanates from the probability that borrowers will default on terms of debt, subsequently leading to high levels of non-performing loans. This concern has resulted into several attempts to manage the increasing levels of NPLs. This study investigates lending policies and their impact on the levels of non-performing loans among commercial banks in Kenya. A descriptive survey was employed in this study with the population of interest of being the forty three (43) commercial banks in Kenya. A questionnaire was used to gather the primary information. The questionnaires were self-administered and drop-and-pick later method was adopted. Descriptive statistics was used to summarize the data and findings presented using tables and other graphical presentations as appropriate for ease of understanding and analysis. The study found that lending policies and non-performing loans are indeed related. Lending policies helps the banks lend prudently and lowers the risk level to the banks, and strict adherence to lending policies therefore has led to reduced non-performing loans.