The Effects of Unsecured Lending on Loan Performance of Commercial Banks in Kenya

Abstract

Commercial Banks have changed their approach and now the target is small savers who have been induced with unsecured personal loans which were the domain of Savings and credit cooperative societies. Currently, individuals and retail customers are being literally begged for Unsecured Loan business by commercial banks, the ones Commercial Banks were uncomfortable to do business with in the recent past. Competition in the financial sector in Kenya has made nearly all Commercial Banks to introduce Unsecured Lending as one of their major products to customers and non customers. Unsecured Lending has immensely grown over the past few years and has surpassed the Secured Lending by some Commercial Banks in Kenya. This study sought to establish the relationship between Unsecured Lending and Loan Performance of Commercial Banks in Kenya. The researcher used secondary sources of data. The researcher made use of secondary data that was obtained for the period (2010 to 2013) on the cumulative loans and advances and cumulative number of unsecured lending of all the 42 licensed and operational commercial banks in Kenya. The quantitative data collected was analyzed by the use of the descriptive statistics using Statistical Package for Social Sciences (SPSS). The researcher summarized the data by computing means and standard deviations to determine whether there were significant difference between groups e.g. t-test and ANOVA. The researcher also examined relationship among variables e.g. correlation and multiple regression. The study concludes that Unsecured Commercial Banks Loans have a strong positive effect on the Loan Performance of Commercial Banks in Kenya