The effect of non-performing loans on the financial performance of commercial banks in Kenya
Date
2017
Authors
Mitai, Achieng Annette
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
This study was carried out with objective of finding out whether the commercial banks in Kenya have been impacted by the problem of non-performing loans and whether ownership has any influence on the impact of non-performing 10ans. A Profitability measured by return on asset is used as dependent variable and non-performing loans measured by non-performing loans ratio, capital adequacy, management efficiency and liquidity are used as independent variables. The independent variables used of CAMEL factors that also affect profitability of commercial banks. To improve the accuracy and reliability of the test Wank size is used as a control variable and ownership as a dummy variable. The ownership structure used in this study whether a commercial bank is government owned that is the government has a significant stake in the bank or whether it is publicly owned. The research covered the commercial banks in Kenya listed in the Nairobi securities exchange for the past five years 2009-2014. The study used secondary data to analyze and draw conclusions and recommendations. A fixed effects model was used. The study indicates that there is negative effect of non-performing loans ratio on return on assets, confirming that non-performing loans negatively affects profitability of commercial banks in Kenya. On top of that the ownership structure was found to influence the impact of non- performing loans.
Description
A Research project submitted in partial fulfillment of the requirements for the Degree of Bachelor Business Science Finance at Strathmore University
Keywords
CAMEL, Non-performing loans, Financial performance