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Research Paper | Business and Finance | Kenya | Volume 12 Issue 8, August 2023 | Popularity: 5.2 / 10

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Influence of Predatory Borrower Practices On Loan Performance among Commercial Banks in Kenya. A Positivists View

Majory Wangari, David Kiragu, Dr. Allan Kuria, Dr. Beth Kariuki

Abstract: Commercial banks are pivotal to the socio-economic development of a Country. In Kenya, their intermediation role is key to the progressive delivery of Kenya?s vision 2030 economic Pillar. The banking sector contributes approximately 5% of Gross Domestic Product in Kenya. These institutions provide the payment system in the economy and access to credit to many other sector(s) in the economy through loans to individual(s), corporate(s) and government(s). However, loan performance is a great concern in the sector. Loan performance has deepened by over 185% in the last decade. Consolidated nonperforming loans stood at a whooping over Kes 500 Billion by 2022. The risk categorization indicated deterioration by 11% in a single year (2021/222). This situation is a great threat to the sustainability of commercial banks in Kenya. The objective this study was to examine the influence of predatory borrower practices on loan performance among commercial bank in Kenya. The study adopted positivism research philosophy and a descriptive research design. The sampling frame and unit of analysis was the 39 commercial banks in Kenya (CBK,2022). The unit of response was 234 managers of these 39 commercial banks. A closed ended questionnaire was used to collect primary data for the predict and a secondary data collection sheet in the case of the predict and. In order to assess the internal consistency of the instrument, a pre- test was carried out using managers of three Micro Finance Banks in Naibori, Kenya. Further, to enhance construct validity, Confirmatory Factor Analysis (CFA) was utilized by generating variable Kaiser-Meyer-Olkin coefficient and the Bartlett?s Chi- Square for factorability analysis. Total variance explained, scree plot and rotated component matrix were generated and further interpreted. Simple linear regression was used for inferential analysis after testing the data for Gaussian distribution, linearity and autocorrelation. The study found that 31.7% of the variations in loan performance could be explained by borrower practices and that there is a statistically significance influence of borrower practices on loan performance. The study recommended that commercial banks review the borrower driven predatory loan practices leading to weak loan performance and incorporate them in the Know Your Customer (KYC) tool for loan evaluation(s) and pricing. The interventions include assessing financial literacy of the borrower, provide financial counseling services and strengthen loan processing practices within the banks. These among others will provide a mechanism of curbing borrower- predators from accessing loans from commercial bank and hence reduce exposure to weak loan performance ratios and unfavorable trends currently experienced in the banking sector in Kenya.

Keywords: Borrower, predatory, loan performance

Edition: Volume 12 Issue 8, August 2023

Pages: 335 - 344

DOI: https://www.doi.org/10.21275/SR23714225433

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