Credit Reference Bureau Policy Effect on Loan Performance of Commercial Banks in Kenya

Abstract

One of the major challenges facing banks all over the world is the increasing rate of non-performing loans. Government and the banks themselves have devised various mechanisms to reduce non-performing loans while increasing credit uptake in the credit market. However, the scenario happens to be opposite; as demand for credit increases, so are the non-performing loans. In Kenya, the government introduced Credit Reference Bureaus in 2009 in order to address this problem. However, the problems continue haunting the banks raising questions on whether credit information sharing is working or not. The purpose of this research project was to establish the effect of credit information sharing policyon loan performance of commercial banks in Kenya. The study employed mixed method research design involving secondary methods. The target population was the 42 commercial banks in Kenya and used 210 credit officers. Collection of data was through the questionnaires which were administered to the bank credit officers using drop and pick approach. Document analysis was used to obtain credit records of the banks. The findings shown that non-performing loans increased significantly even after implementation of the credit information sharing (CRB) policy, an implication that the main expected outcome was not achieved. Though there was a significant increase in profits after implementation of the CRBs, a close analysis of the trend shows that there was no major shift that could be attributed to the policy. Responses from the accounting officers also proved that through the CRB policy was well intended, the goals have not been met largely due to lack clarity on the criteria for listing and delisting defaulters. The study therefore recommends the commercial banks and the CRBs should make their policies on listing and delisting defaulters clear and easy to implement.