CREDIT INFORMATION SHARING AND PERFORMANCE OF SELECTED COMMERCIAL BANKS IN KENYA
Oira Sammy Machoka - Masters of Business Administration Degree (Finance), Kenyatta University, Kenya
Dr. Lucy Wamugo - Lecturer, Kenyatta University, School of Business, Department of Accounting and Finance, Kenya
ABSTRACT
Many banks in Kenya have been experiencing poor financial performance. Most of these financial problems arise from lack of credit information on the loan applicants which then affect their ability to recover both the principle and the interest. There have been efforts by the Central Bank of Kenya to advance credit information sharing on loan applicants among commercial banks so as to reduce the default rates among loan beneficiaries. This study aimed to establish the effect of credit information sharing on the performance of selected commercial banks in Kenya. The specific objectives were; To establish the effect of competitive information sharing on performance of commercial banks in Kenya; to assess the effect of credit scoring on the performance of commercial banks in Kenya; to establish the effect of efficiency in the information gathering process on the performance of commercial banks in Kenya and to assess the effect of information accuracy on the performance of commercial banks in Kenya. This study employed a descriptive research design. The study was anchored on information asymmetry theory, moral hazard theory and financial intermediation theory. The population of this study entailed all the 43 commercial banks licensed under the banking Act as at 31 December 2015 in Kenya. The study used primary and secondary data. Primary data was collected using closed ended questionnaires administered on drop and pick method while secondary data was collected from CBK annual supervision reports and the banks specific audited accounts. Data was analyzed using both descriptive and inferential statistics. The qualitative data collected was analyzed using mean, standard deviation, frequencies and percentages while inferential statistics including multiple regression analysis was performed to estimate the changes in performance following changes in credit information sharing variables. The study used tables and charts to present the analyzed data. From the findings, there exist a strong correlation between variables. The study established that the credit information sharing explained for a large proportion of changes in the performance of commercial banks in Kenya. The overall regression model was significant in determining credit scoring on credit information sharing and performance of commercial banks in Kenya as shown by the value of R2. The study established that credit scoring system has a significant effect on capability to repay loans. The study recommended that credit scoring system should give information on borrowers’ capability to repay loans, credit scorecards tools should be used to assess the behavior of prospective borrowers while good credit track record should reduce credit risks.
