Abstract: The study focused on the effect of Non-Performing Loans on financial performance of commercial banks operating in Kenya. A descriptive survey and empirical research designs were adopted by the study where the target population comprised 44 commercial banks in Kenya. The study used a census of all commercial banks licenced by Central Bank of Kenya. Data sheets were used to collect secondary data from the central bank supervisory reports and banks published audited financial statements for the last five years 2011-2015. Data collected was analyzed using descriptive statistics which include the use of standard deviation and means. Inferential statistics included Pearson correlation, Multiregression and ANOVA. It was established that nonperforming loans had a statistically significant effect on financial performance proxied by ROA (β1= -7.042, t = -.968, p = .002 and α = 0.05). Other bank specific factors including Bank size, capitalization operating costs had a statistically significant effect on financial performance proxied by ROA. However; liquidity had a statistically insignificant effect on financial performance proxied by ROA. Outcome of this study would enable management of commercial banks in Kenya adopt feasible mechanisms to control the growing problem non-performing loan.
Keywords: Financial Performance, Non- performing loans, commercial banks and liquidity.
Title: Non-Performing Loans and Financial Performance of Banks: An Empirical Study of Commercial Banks in Kenya
Author: Lucy Mumbi Chege, Dr. Julius Bichanga
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
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