The Effect of Mortgage Financing on Profitability of Commercial Banks in Kenya

Abstract

The mortgage market in Kenya has been rising over time which has seen growth in profitability of the commercial banks that have been offering mortgage financial services to Kenyans. Advancing mortgage credit implies that the commercial bank money is tied up somewhere whose payment is in the future. This study sought to determine the effect of mortgage financing on the profitability of commercial banks in Kenya. To achieve the objective of the study, a descriptive research design was used. The population of this study included all the 43 Commercial Banks in Kenya. The sample size of this study involved all commercial banks that offered mortgage financing between years 2010 to 2014. The secondary data was sourced from the annual reports available from the Central bank of Kenya. Data analysis was done using a regression model to test the influence of various variables on the profitability of commercial banks in Kenya. The correlation results found that firm size was moderately correlated to profitability of commercial banks in Kenya. The study found that firm size was statistically significant in explaining the effect mortgage financing on profitability of commercial banks in Kenya. Further, it was revealed that operating efficiency, capital adequacy and liquidity were found to be statistically insignificant. The study recommends that central bank of Kenya and other policy makers should use the empirical findings obtained from this study as a guide to promote policies that create a conducive atmosphere for commercial banks to grant their customers mortgage loans as a way of enhancing profitability of commercial banks in the longterm. The limitations experienced in the study was the reliance on secondary data only thus some issues that could have arisen if primary data was used could not be analyzed. Mortgage financing is mostly used to finance capital projects which are long-term in nature and whose maturity period exceeds ten years in most cases. The study therefore recommends that future researchers interested in this field of study should consider increasing the period of study to ten or twenty years in order to obtain more conclusive results. Then, findings may be compared upon which reliable conclusions can be drawn.