Credit Information and Asset Quality of Commercial Banks in Nakuru Town, Kenya

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dc.contributor.authorKaigu, Kinyati John
dc.date.accessioned2019-10-23T12:28:53Z
dc.date.available2019-10-23T12:28:53Z
dc.date.issued2019-04
dc.descriptionA Research Project Submitted in Partial Fulfillment for the Award of the Degree of Masters in Business Administration (Finance Option) School of Business, Kenyatta University.en_US
dc.description.abstractCommercial banks in Nakuru Town, Kenya are institutions that are in the business of providing credit facilities to their customers in order to generate interest income. On the other hand, bank customers in Nakuru town are increasingly aware of the fact that they can have multiple credit facilities from different banks. With cut-throat competition in the banking industry, and with the need for commercial banks in Nakuru Town to protect the quality of their asset portfolio, the banks have to design ways of improving their asset quality through sharing information that credit bureaus keep on their customers. The commercial banks in Nakuru town, have reported increases year on year in the level of non-performing loans. To improve on deteriorating asset quality, the banks have enlisted the services of credit bureaus in order to identify and then “lock out” serial defaulters. Therefore, the objective of the study is to establish the effect of credit information on the asset quality of commercial banks in Nakuru Town, Kenya. The specific objectives of the study are to determine the effect of collateral information on asset quality of commercial banks in Nakuru Town, Kenya, to determine the effect of business ratings information on the asset quality of commercial banks in Nakuru Town, Kenya, to determine the effect of consumer identity verification information on the asset quality of commercial banks in Nakuru Town, Kenya, to determine the effect of customers credit status information on asset quality of commercial banks in Nakuru Town, Kenya and to establish the effect of consumer default information details on asset quality of commercial banks. The literature review focused on bank risk management theory, loanable funds theory, Merton’s default risk model and asymmetric information theory. Primary data was collected using questionnaires in order to get accurate results. The study used regression analysis and the findings revealed that Business Ratings and Collateral Information significantly influences up to 59.4% and 17.6% positive variation on Asset quality respectively. This implies that for every one unit increase in Business Ratings information asset quality increases by 59.4 % while Collateral Information increases Asset quality increase by 17.6 %. It was also observed that Consumer Default Information significantly influences 36.3% positive variation on Asset quality. However, it was noted that Customer’s Credit Status Information significantly influences 32.5% negative variation on Asset quality. This implies that for every one unit increase in Customer’s Credit Status Information, Asset quality decreases by 32.5%. Similarly, Consumer Identity Verification Information influences negatively Asset quality by 9.3%. In this study, Business ratings information is the best predictor of asset quality. The linear regression equation derived from the analysis was of the form of Y = 0.933 + 0.176X1 + 0.594X2 - 0.093X3 - 0.325X4 + 0.363X5+0.86 where Y = Asset quality, 0.933 = constant term, X1 = Collateral Information, X2 = Business Ratings Information, X3 = Consumer Identity Verification Information, X4 = Customer’s Credit Status Information, X5 = Consumer Default Information, 0.86 = ℮ = Error term. It was concluded that Collateral information, business ratings information and consumer default information influences positively asset quality. However, consumer identity verification information and customer’s credit status information influences negatively on asset quality. The study recommends that Collateral information should be controlled in order to promote positive loan performance by commercial banks as well as that business ratings information should be adequately provided in order to enhance quality assets of commercial banks. In addition, proper verification of clients should be promoted by commercial banks in order to control Non-Performing Loans as well as implementation of correct customer’s credit status information should be maintained in order to avert incidences of serial Non-Performing Loans. Finally holistic recording concerning consumer default should be developed in order to improve asset quality in commercial banksen_US
dc.description.sponsorshipKenyatta Universityen_US
dc.identifier.urihttp://ir-library.ku.ac.ke/handle/123456789/19886
dc.language.isoenen_US
dc.publisherKenyatta Universityen_US
dc.titleCredit Information and Asset Quality of Commercial Banks in Nakuru Town, Kenyaen_US
dc.typeThesisen_US
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