A Survey of Responses to the Global Financial Crisis by Commercial Banks Offering Mortgage Finance in Kenya

Abstract

The sub-prime mortgage crisis affected the real estate industry and caused a financial crisis triggered by a dramatic rise in mortgage deliquencies and foreclosures in the United States, with major adverse consequences for banks and financial markets around the globe.Three important catalysts of the subprime crisis were the influx of moneys from the private sector, the banks entering into a mortgage bond market and the predatory lending practices of mortgage brokers. The mortgage lenders in Kenya adopted organizational, regulatory and strategic responses in reacting to the economic situation to mitigate upon the inherent risks in the mortgage industry. The research objectives are geared towards establishing the responses adopted by the commercial banks offering mortgage finance towards the global financial crisis. This study adopted a descriptive research design. The population comprised of 10 commercial banks that offer mortgage finance to the market. The research was conducted through a census survey of the target population. Primary data was obtained through questionnaire distributed to bank employees working in risk department while secondary data was sourced from central bank publications and website and ministry of finance recommendations in the finance bill. Finally data was analysed using descriptive statistics by means of tables, variances and mean computations. The findings show that the banks employ in equal measure, organizational responses such as restructuring, regulatory responses such as reduction of interest rates and strategic responses such as diversification towards the global financial crisis. On the causes and effect of the crisis, the study revealed that there is insufficient demand for mortgage finance in the local markets, hence creating a mismatch between local demand and supply. The research concludes that proper management is necessary in order to prevent excessive exchange rate induced inflation and a deterioration of the trade balance. The study further concludes that the banks offering mortgage finance should implement special initiatives and research in response to the global economic downturn, educational leave policies and voluntary early retirement policies. This study recommends that commercial banks offering mortgage finance employ organizational, strategic and regulatory responses in responding to the global financial crisis.