Determinants of non-performing loans in commercial banks in Kenya

Abstract

The purpose of this study was to determine the macroeconomic and bank specific factors affecting nonperforming loans in commercial banks in Kenya. It aimed at determining the relationship between these factors and nonperfonning loans. A panel data analysis for all 43 commercial banks in Kenya was carried out for the period from 2003-2912 using a fixed effects model. The results revealed that Loan loss reserves and government deficit are the significant variables in the study. It showed that a negative relationship exists between Loan loss reserves and nonperforming loans and a positive relationship between government deficit and non perfonning loans which is in line with studies conducted by other researchers. Generally, this study reveals macroeconomic determinants as being the major cause of non perfonning loans.