The Effect of Credit Card Default on the Financial Performance of the Kenya Commercial Bank

Abstract

The purpose of this report was to the effect of credit card default on the financial performance of the Kenya Commercial Bank:. Independent variables were number of accounts closed, non-performing loans and bad debt written off as a result of credit card default. The source of this information was data from the bank's credit card and financial system. Dependent variables were Earnings Per Share, Dividends per share, loans to customers, total asset and customer deposits. The source of this information was the bank: annual financial reports. The period under evaluation was between year 2008 and year 2012. Linear regression was used to determine the rate and direction of change in performance with change in nonperforming loans. In summary, the research findings are that Gold card holders are the majority card holders in KCB at 56%. Further, majority card cardholders are men (53%) with the proportion of female being 47% only. In terms of revenue, although gold card has the highest number of card holders (56), it only contributes 33% of the revenue collected through credit cards. In terms of credit card default, 100% of all the holders of local credit cards are defaulters. In terms of revenue, although gold card has the highest number of card holders (56), it only contributes 33% of the revenue collected through credit cards. In terms of credit card default, 100% of all the holders of local credit cards are defaulters. This research's conclusion therefore is that The proportions of credit card holders, revenue collected as well as the amounts and proportion defaults from credit cards vary between different types of cards. The distribution of cardholders seems to take a bell shaped curve with respect to age, with the age group between 35-45 being the highest number of card holders. On the other hand, the distribution of credit card defaulters takes a left skewed curve, with the age between 25-35 year having the highest proportion of defaulters. Given that age between 25-35 years has the highest proportion of defaulters, it has been recommended that bank be more vigilant when managing the card holders within this age group. The bank: should also establish and address factors that make this group have the highest proportion of defaulters. Further, further, due to the finding that credit card defaults negatively affects the bank performance on EPS, DPS, customer deposits as well as total assets, it has been recommended that KCB to continue ensuring that there is decline in number of credit card default. Finally, since this research has further established that the proportions of credit card holders, revenue collected as well as the amounts and proportion defaults from credit cards vary between different types of cards, recommendation is that there is need to have policies that are tailor made for each category of credit cards. This will aim to maximize revenue while still minimizing the risk of default per each type of credit card.