Bank Characteristics and Non Performing Loans of Commercial Banks Listed at the Nairobi Securities Exchange, Kenya

Abstract

The main role played by commercial banks is financial intermediation, that is, the channeling of funds from extra to deficits units to facilitate production activities. However, the greatest risk faced by bank is loan default, also known as non performing loans. The upsurge in non-performing loans among banks in Kenya has been a source of worry to all stakeholders. This is because they lead to problems on banks’ assets as well as bank’s balance sheet, and have a negative consequence due to underlying loan losses provision. Majority of previous empirical works were in advanced nations and some on other developing nations apart from Kenya. Other studies similarly, did not considered diagnostics tests for purposes of ensuring that the research data is adequate and appropriate for inferential estimations. The study sought to find out on what effect bank characteristics has on none performing loans of banks, in the Nairobi Securities Exchange. Purposely it is going to establish the consequence of size of bank, adequacy of capital and earnings on non performing loans of listed banks in Nairobi Securities Exchange. Theory of optimal bank size, Buffer on capital adequacy and Efficiency Structure Theories are used. Causal design of research was relied upon. Research population comprises of the 11 (eleven) banks listed on the Nairobi Securities Exchange, Kenya where a census approach was relied on. The period that was considered in the study is from 2012 to 2017. Panel regression was used in analyzing the data. Data presentation is going to be done with the table, figure and charts. Ethical norm, standards and guidelines were followed in carrying out this research work. The study concluded that capital adequacy had insignificant effects on non performing loans of listed commercial banks in Kenya. The study concluded that bank size and earnings had insignificant effects on non performing loans of listed commercial banks in Kenya. The study is of the recommendation that banks should have in place measures that will scale down the long procedures in banks. The study further recommends that banks should diversify their investments. Other than the traditional activities of lending, banks can also explore other business lines so as to curb the consequence of over reliance on lending