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Research Paper | Management | Kenya | Volume 4 Issue 5, May 2015 | Popularity: 6.8 / 10

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Influence of Socio-Demographic Determinants on Credit Cards Default Risk in Commercial Banks in Kenya

F.K.Kiarie, D.M.Nzuki, A.W. Gichuhi

Abstract: Commercial banks play a major role in economic growth and development through provision of credit. To achieve this, financial payment instruments such as credit cards are increasingly accepted and used in consumer credit market worldwide. However, credit card performance surveys shows that credit default is a major risk faced by commercial banks in Kenya. The risk attributable to credit card default leads to high effective borrowing rates and therefore increased cost of doing business. A study on influence of determinants of credit cards default is therefore necessary for mitigation against this risk and for the safety and soundness of the banking sector. This study therefore sought to investigate the influence of socio-demographic determinants of credit card default in commercial banks in Kenya. The study used secondary data containing socio-demographic details of credit card holders obtained from bank records. The data set was used to identify risk factors associated with a credit cardholder that had higher predictive power of credit card default. These risk factors were gender, marital status, age and educational level. Independent samples t-tests and Chi-Square tests were carried out to identify significant explanatory variables for default in credit cards. A Logistic regression model was then fitted to determine factors with high predictive power of default in credit card loans. Results show that age is a risk factor in credit cards default with younger cardholders having higher olds of defaulting compared to older cardholders. Male cardholders have equal likelihood of defaulting as female cardholders. Education level was found to be statistically insignificant to credit card default. The study therefore recommends creation of more awareness and sensitization to young cardholders on optimal and best industry practice in credit card usage.

Keywords: Credit card, credit card default, consumer credit market, logistic model and logit transformation

Edition: Volume 4 Issue 5, May 2015

Pages: 1611 - 1615

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