Credit information sharing and performance of Commercial banks in Kenya
Kerage, Peter Misiani
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Commercial Banks are in the business of mobilizing and lending financial resources to borrowers. In the process of providing financial services, they assume various kinds of financial risks which affect their performance. Various studies have been done on determinants and measurement of bank performance. However, little research studies have been done on effects of credit information sharing on performance of commercial banks in Kenya. This research study was undertaken to establish how the diffusion of information sharing has affected performance of commercial banks in Kenya. The main objective of this study was to establish the relationship between credit information sharing and performance of commercial banks in Kenya. Specific objectives were: to determine the effect of credit information sharing on non-performing loans portfolio, to evaluate the effect of credit information sharing on volume of lending, to establish the effect of credit information sharing on the level of interest rates and to determine the effect of credit information sharing on operating costs. The target population of this study was all credit managers of all the 43 licensed commercial banks in Kenya. The study adopted census survey of the all the banks licensed under the Banking act (Cap 488 Laws of Kenya). The study used primary data and secondary data. Primary data was collected using questionnaires which were administered using drop and pick method. Secondary data was collected from Central Bank Supervision reports and annual audited reports of commercial banks. Data was analyzed using both descriptive and inferential statistics. The data collected was analyzed using multiple regression analysis. The regression output was obtained using Statistical Package for Social Sciences (SPSS version 18) and computation of financial ratios from the financial statements and hence the interpretation of the study model. The study used both qualitative and quantitative data. Qualitative data was analyzed using interpretive approach which included sorting and coding raw data and use of SPSS. Quantitative data was analysed using multiple regression technique between variables which showed that the variables under study were significant in explaining the relationship between credit information sharing and bank performance. The study found that there are systematic written down steps in the handling of defaulting customers in the commercial banks in Kenya and that most commercial banks utilize information from reference bureaus in appraising the customer credit. The study further revealed that central bank rate is the major factor that affects the pricing of loans in Kenya. The study established that non-performing loans, volume of lending, level of interest rate and operating costs significantly affect the performance of commercial banks in Kenya. The study concluded that there was inadequate information sharing among commercial banks in Kenya and recommends that central bank should roll out CIS mechanism to all financial sectors like SACCOs and NBFs and also improves CIS mechanisms in Kenya by enacting a better legal framework.