Mortgage Financing and Profitability of Commercial Banks Listed at Nairobi Securities Exchange, Kenya
Loading...
Date
2024-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
In Kenya, commercial banks have experienced dwindling profitability in the recent past. The commercial banks’ growth rate in profitability recovered in 2021 following the continuing decline experienced in the recent years that closed in a negative growth rate in the year 2020. This necessitates the need to understand the factors leading to reduction in profitability in the banking sector. Empirical evidence shows mixed results on how mortgage financing affects commercial banks’ profitability. Evidence on mortgage financing and commercial banks’ profitability in Kenya is therefore unclear and inconclusive. Subsequently, this study wanted to determine the effect of mortgage finance on profitability of listed commercial banks in Kenya. The specific objectives were to assess the effect of mortgage NPL ratio, mortgage concentration, mortgage size and mortgage ratio on profitability of quoted commercial banks in Kenya. This study also investigated the effect of long-term debt as a moderating variable on the link between mortgage financing and profitability of listed commercial banks in Kenya. Hypotheses testing was at 0.05 level of significance. The study was anchored on the following theories: modern portfolio theory, mortgage value theory, title and lien theory, and financial intermediation theory. The target population of the study was all the 11 quoted commercial banks on NSE in Kenya and were operational in the period 2012-2021. Positivism research philosophy and explanatory research design were applied in the study. The time scope of the research was 10 years (year 2012 to year 2021). Secondary data was obtained from audited financial reports of commercial banks and CBK bank supervision annual reports. Preliminary diagnostic tests done included: stationarity, normality, multicollinearity and Hausman test. Data analysis done using STATA software included descriptive statistics, inferential statistics, correlation and panel regression analysis. The study adhered to ethical considerations by seeking authority from Kenyatta University Graduate School and NACOSTI. Panel regression results indicated that mortgage NPL ratio had an insignificant negative effect on profitability of commercial banks listed on NSE. In addition, mortgage concentration had a positive but insignificant effect on profitability of commercial banks listed on NSE. The study equally found mortgage size to have a significant negative effect on profitability of commercial banks listed on NSE. Also, mortgage ratio had a significant positive effect on profitability of commercial banks listed on NSE. Long-term debt had a significant moderation effect on the link between mortgage financing and profitability of commercial banks quoted at NSE. The study recommends that the CBK and all housing sector stakeholders should come up with policies and regulations that will develop the secondary mortgage market. Commercial bank managers should also enhance their mortgage credit risk management policies since non-performing mortgage loans affect profitability negatively. CBK and bank managers should come up with strategies that will increase mortgage loans borrowing thereby improve mortgage concentration hence growth in profitability of commercial banks. Since this research focused only on listed commercial banks, future research should be on the effect of mortgage financing on profitability of SACCOS and micro finance institutions.
Description
A Research Thesis Submitted to the School of Business, Economics and Tourism in Partial Fulfillment of the Requirements for the Award of Degree of Master of Science (Finance), Kenyatta University, June 2024.
Supervisors
1. Job Omagwa
2. Charity Njoka