DETERMINANTS OF LOAN PORTFOLIO QUALITY IN INVESTMENTS GROUPS: A CASE STUDY OF SIDIAN BANK
Nyandoro Emily Barongo - Faculty of Commerce, Egerton University, Kenya
Kalui Fredrick Mukoma (PhD) - Faculty of Commerce, Egerton University, Kenya
ABSTRACT
The objective of the study was to establish portfolio quality determinants in investment groups financed by Sidian bank in Nairobi region. Specifically, the study sought to determine the effects of macroeconomic, group leverage, group capitalization and group characteristics on portfolio quality of investment groups. The study adopted a case study research design the target population being all the 56 investment groups in the 9 branches under Sidian bank within Nairobi region. The study employed secondary data, which was obtained from Sidian bank offices and investment groups within Nairobi region. Data analysis was conducted using descriptive statistics including percentages, frequencies, means and standard deviation as well as inferential analysis via correlation and multiple regression analysis. The study established that macroeconomic variables, group leverage level, group capitalization and group characteristics positively and significantly influences portfolio quality of investment groups financed by Sidian bank in Kenya. It was also established that group leverage had the greatest influence on portfolio quality of investment groups financed by Sidian bank in Kenya followed by macroeconomic variables while group capitalization level then group characteristics had the least effect on the portfolio quality of investment groups financed by Sidian bank in Kenya. The study recommends that Sidian bank should manage their portfolios by understanding risk exposure for each credit but also how the risks of individual loans and portfolios are interrelated. The study also recommended that, banks should be allowed to invest more in loans and advances as long as such banks have enough reserves to finance such investments and that banks should be allowed to scale up their operations so long as there is adequate capitalization to support their growth. The study further recommends that regulatory authority (CBK) and other stake holders should create an enabling environment that removes all these inefficiencies to the policy concern of high cost of credit.
