Effect of Credit Information Sharing on the Financial Performance of Commercial Banks in Kenya

Abstract

ABSTRACT This study was set out to establish the effects of credit information sharing on the financial performance of commercial banks in Kenya. It sought to determine the effects Credit Reference Bureaus have in relation to financial performance of commercial banks since the adoption of the concept in Kenya in the year 2010.The research adopted the descriptive research design which was most appropriate in attaining the objective of the study. The target population of this study comprised of all the 43 commercial banks licensed by Central Bank of Kenya as at 31st march 2011. The study used secondary data on NPLs and Credit reports shared by the CRBs with the commercial banks. Quantitative data on ROA and the ratio of non-performing loans to total loans was extracted from the annual reports and financial statements of the various commercial banks. Data on credit information sharing was obtained from the CRBs. In order to test this relationship a regression analysis was run with ROA as the dependent variable and the ratio on NPLS to total loans and CRB entries as the independent variables. The study found that sharing of credit information had led to a decrease in the Non performing loans which has an impact on the financial performance of commercial banks. The comparison of financial before and after the establishment and operationalization of credit information sharing shows an increase in the financial performance. The study recommends that the government through the relevant agencies publish credit information sharing regulations and create awareness to the public on the services available from credit reference bureaus so that borrowers can submit the relevant information to the lending institutions. The study concludes that credit information sharing has a positive effect on the financial performance of commercial banks. This study focused on licensed commercial banks, further research should be undertaken covering all lending institutions to establish the relationship or the effect of Credit Information Sharing on financial performance