Abstract: Loan performance has over the years been a critical issue for banks as well as regulators. High/significant financial costs and economic costs are associated with non-performing loans. Banks’ long term sustainability is threatened by its failure to earnings from various loans as well as recovering principal. Empirical works in past were however largely based on other countries, similarly, these works focused largely on multiple regression technique. This study investigated the effect of firm characteristics on commercial banks’ loan performances in Kenya. Specifically, the study examined the effect of capital adequacy, bank size and liquidity on loan performances of commercial banks in Kenya. The study’s target population of the study consists of all commercial banks in Kenya from 2013 to 2017, these are forty in number. The enquiry was based on census approach and focused Kenyan commercial banks. The analysis of data was done using descriptive and inferential analyses. The regression technique with a threshold of 5% level of significance was used. The study concluded that capital adequacy strongly influences the loan performances of commercial banks in Kenya. The study also found that bank size had significant effect on loan performance of commercial banks. The study concluded that liquidity to be a key predictor of loan performances. Banks should ensure putting in place sufficient capital buffer before focusing on lending activities. The study recommends that put up effective risk assessment and monitoring structures in place so as to eliminate the bureaucracies associated with large banks. This will in turn lead to decreasing no performing loans and in turn improve loan performances of commercial banks. The study is of the recommendation that banks increase their investment options, so as to diversify, thus, reduce poor loan performances.
Keywords: Capital Adequacy, Bank Size, Liquidity, Loan Performance and Commercial Banks.
Title: BANK CHARACTERISTICS AND LOAN PERFORMANCE OF COMMERCIAL BANKS IN KENYA
Author: ESTHER MAKENA JOTHAM, JOSEPH THEURI
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
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