Customer Information Sharing and the Performance of Selected Commercial Banks in Kenya.
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Date
2016-07
Authors
Kinanga, Annah Moraa
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Commercial banks play a very important role in the economic resource allocation on an economy
by taking deposits from customers and then lend thus acting as an intermediary. Therefore it is of
essence for commercial banks to remain profitable. In the wake of the banking crises in the last
decade, Credit Reference Bureaus have been introduced in the Kenyan banking sector to
facilitate the concept of credit information sharing, to mitigate information asymmetry and credit
risk. In Kenya, there are three licensed Credit Reference Bureaus, namely; CRB Africa which
was licensed in 2010, Metropol Ltd licensed in April 2011 and Credit info Credit Reference
Bureau Limited which was licensed in May, 2015. This study therefore sought to establish the
relationship between customer information sharing and the performance of selected commercial
banks in Kenya. The specific objectives of the study were to establish the effect of customer’s
credit report on the performance of commercial banks in Kenya, the effect of the customer
information on the performance of commercial banks in Kenya and finally the effect of portfolio
at risk on the performance of commercial banks in Kenya. This study was a quantitative research
that adopted a correlational research design. The population consisted of all the listed
commercial banks in the country; Kenya and the credit reference bureaus licensed as at 31st Dec
2013. The Kenyan Banking Sector is currently made up of about 50 financial institutions with 44
of these being commercial banks between the periods 2011 to 2015.Cooper and Schindler (2003)
argue that a sample size of between 10-30% of the target population can be adequate for
generalization of the research findings to the study provided the sample is scientifically
determined. Thus stratified proportionate random sampling technique was used to select the
sample of 20 commercial banks and data was analyzed using both qualitative and quantitative
methods and explanation given in prose. The banks were selected based on level of precision, the
level of confidence, and finally the degree of variability in the attributes being measured. The
data that was extracted included: bank supervision annual reports, the number of credit reports
requested by commercial banks in Kenya, portfolio at risk, ROA, ROE and NIM from published
reports. The sources were chosen because of the credibility as the data on loans defaulting and
credit information request have been verified by the central banks on-site and off-site
inspections. The researcher utilized time series empirical data on the variables. Data analysis was
descriptive as well as regression analysis. The regression model was found to be well specified
and found that credit information sharing positively and significantly influenced banks’
profitability. The study shows a very strong positive relationship between customer information
sharing and the performance of commercial banks in Kenya. In addition, the findings indicate
that there was no strong relationship between the characteristics of borrowers and the
performance of loans of commercial banks in Kenya. The study recommends that an open
system needs to be enhanced to allow financial institutions as well as non-bank entities retailers,
telecom and utility companies access to this information so as to know which clients to serve and
what differential price to charge to cover the risks. To ease customer information sharing, it
should be accessible easily and at no cost.
Description
A Research Project Submitted to the School of Business in Partial Fulfillment of the Requirement for the Award of the Degree of Master of Business Administration
(Finance Option) of Kenyatta University