Assessment of causes creating non performing mortgage loans in Kenya

Abstract

This project aimed at identifying the causes that create non-performing mortgage loans in financial institutions that offer mortgage loans in Kenya. It begans with a theoretical study of the background of the causes of the non-perfoming mortgage loans in housing market globally and in the country.This was done through review of existing literature on non-performing mortgage loans both in Kenya and other countries.The study aimed at identifying the characteristics of the mortgage loans, causes creating nonperforming mortgage loans in the portfolios of the financial institutions granting mortgage loans in Kenya properties market and propose ways to address the identified causes of non-performing mortgage loans. The study focus on finanancial institutions offering mortgage loans (target population) but limit to those institutions that grant mortgage to customers or public. This is because most financial institutions especially commercial banks offer mortgage loans to their staff. There are thirty (30) financial institutions that offer mortgage loans to customers and therefore used as the study sample (CBK, 2012). These financial institutions consisted of one fully pledge mortgage company (HFCK) and commercial banks which grant mortgage loans througth subsidaries companies licenced by CBK.Such as S & L of KCB, Rafiki of Chase bank etc. The thirty financial institutions offering mortgage loans formed the target population of study. This research was administred through the use of structured questionnaire distributed among respondents to collect primary data. Drop and pick later method for distribution of the questionnaire was adopted. Out of the thirty (30) questionnaires distributed to mortgage financial institutions only sixteen (16) responded, representing a response rate of 53%. These were considered adequate for the purposes of this research study as major market players were represented. After data analysisthe study revealed that there are various factors that causes creation of non-performing mortgage loans in financial institutions granting mortgage loans in Kenya. The main factors being high mortgage variable rate, loss of income, general decline in economy and poor credit assessment mechanism. The study concluded that high mortgage rate is the main factor causing creation of non-performing mortgage loans in Kenya and hence the need to adopt far reaching approaches for the benefit of all participants within mortgage industry as proposed in this study.