Effect Of Credit Information Sharing On Curbing Non-performing Loans In Commercial Banks A Case Of Selected Commercial Banks In Nairobi, Kenya

Abstract

The purpose of this study was to establish theeffect of credit information sharing on curbing non-performing loans in commercial banks in Kenya. The specific objectives guiding the study included: to establish the effect of reputation collateral building through CRBscredit evaluation processes, information management and credit policies of the CRBs on curbing non-performing loans of commercial banks. It adopted the descriptive research design and the population of the study included one operations manager and two credit management officers in 43 registered commercial banks in Nairobi County, Kenya. Simple random sampling method was employed at 30% on the 129 targeted respondents to get the study sample of 39 respondents. The selected respondents were considered to be key informants in the study area. Data was collected from primary sources using astructured questionnaire. Reliability and validity was tested through piloting. Ethics in research was observed and responses handled with utmost confidentiality, while the study ensured fair gender representation of respondents. Data was analyzed by the aid of Statistical Package for Social Studies (SPSS) computer software through frequencies, means, percentages, correlation coefficient as well as regression method. It was presented through tables and graphs.The study found that credit information sharing enabled borrowers’ profiling for lending decisions by the banks. The credit evaluation methods were found to be effective in mitigating banks’ credit default while credit scoring enabling the banks to ascertain loan delinquency and act appropriately.The influence of CRBs managerial capacity and infrastructure to manage information supplied by the commercial banks was not significant. Though the CRBs credit information sharing policies were aligned to those of the banking sector, the effect of CRBs credit policies in enhancing credit management by the banks was not high. In conclusion, there was a significant influence of credit evaluation processes, information management and reputation collateral building. The study recommends that the CRBs should review their policies to ensure that they contribute to mitigating credit risks for financial sector players including the commercial banks. Adopting a collaborative approach, the CRBs will greatly gain from the input of the commercial banks in enhancing strategies for information sharing in curbing nonperforming loans.