Credit Information Sharing and Financial Performance of Commercial Banks in Kenya

Abstract

Empirical studies done on the area of credit information sharing and its effect on financial performance of commercial banks in Kenya have not been conclusive. Information sharing in the credit market is a relatively new concept in most Kenya and other emerging economies. Credit information systems are still in their infancy, and information sharing among banks remains weak. Credit reference bureaus were introduced in the Kenyan banking sector to facilitate the concept of credit information sharing and to mitigate information asymmetry and credit risk. In the process of providing financial services, they assume various kinds of financial risks which affect their financial performance. Various studies have been done on determinants and measurement of bank financial performance. However, little research studies have been done on effect of credit information sharing on financial performance of commercial banks in Kenya. This study sought to determine the effect of credit information sharing on financial performance of Commercial Banks in Kenya. The specific objectives were; to find the effect of competitive information sharing, volume of lending, operating cost and level of interest rates on financial performance of Commercial banks in Kenya. This study employed a descriptive research design. The study was anchored on moral hazard theory, adverse selection theory and theory of asymmetric information. A descriptive research design was employed. The population of this study entailed all the 43 commercial banks licensed under the banking Act as at 31 December 2015 in Kenya. This study used primary data. Primary data was collected using closed ended questionnaires administered using a drop and pick method. Data was analysed using both descriptive and inferential statistics. The multiple regression model was used to determine the effect of credit information sharing on financial performance of commercial banks in Kenya. The study established that all the variables namely competitive information sharing, volume of lending, operating costs and the level of interest have positive and significant effect on financial performance of commercial banks in Kenya. T he study concludes that competitive information sharing, volume of lending, operating costs and the level of interest rate all had positive and significant influence on financial performance of commercial banks. The study recommends that competitive information sharing among commercial banks should be strengthened to enhance their financial performance. All commercial banks in Kenya need to put in place sound policies that increase the lending base and therefore financial performance. The top management of all commercial banks should emphasize on operational efficiencies to eliminate unnecessary operating costs and therefore improved financial performance. The Central Bank of Kenya and the National Treasury should work closely to ensure stability of levels of interest rates in the economy for better financial performance of commercial banks.