The Effect of Credit Information Sharing on Credit Risk in Kenya Commercial Banks
Keywords:Credit risk, Credit history, Creditworthiness, Repayment history
AbstractThis study sought to examine the effect of credit information sharing on credit risk in Kenya commercial banks. The specific objectives of the study were to establish the effect of information sharing on borrowerâ€™s credit history, credit worthiness and repayment history on credit risk in Kenya commercial banks. The study adopted a descriptive survey research design. The target population of the study was the 42 commercial banks in Kenya as licensed by the Central Bank of Kenya. The study was based on both primary and secondary data. The primary data was collected through a questionnaire from the credit managers of the 42 commercial banks while the secondary data was retrieved from the CBK annual reports. The study was based on quantitative data which was analysed using descriptive and inferential statistics. The study established that borrowersâ€™ credit history, credit worthiness and repayment history had an inverse relationship with the banksâ€™ credit risk level. The study concluded that information sharing on borrowerâ€™s credit history, comparing the past history of debt repayments as well as the current debt and information on borrowerâ€™s credit worthiness reduces credit risk. In conclusion credit information sharing has been helpful in credit risk reduction in Kenya commercial banks. Based on the study findings the study recommends that commercial banks and other lenders should adopt adequate credit information sharing systems.
â€¢ Alloyo, S. (2010). The effect of credit reference bureaus on credit risk of commercial banks in Kenya. Unpublished MBA Research Paper, University of Nairobi.
â€¢ Angulin, D., & Scapens, R (2000). Transparency, accounting knowledge and perceived fairness in UK universitiesâ€Ÿ resource allocation: Results from a survey of accounting and finance. British Accounting Review, 32(1), 1-42.
â€¢ Anthony, R. (2006). "Micro Credit and the Poorest of the Poor: Theory and Evidence from Bolivia". World Development, 28(2), 333-346.
â€¢ Basel (2010). Principles for the Management of Credit Risk. Basel Committee on Banking Supervision, Basel.
â€¢ Brown, M., & Zehnder, C. (2006). Credit Reporting, Relationship Banking and Loan Repayment. Journal of Money, Credit and Banking, 39(8), 1883-1918.
â€¢ Central Bank of Kenya, (2012). Bank Supervision Annual Reports 2012.
â€¢ Cooper, D. & Schindler, P. (2003). Business research methods. 6th ed. Boston: Irwin/McGraw Hill.
â€¢ Credit Referencing Bureau (2016). http://ciskenya.co.ke/strategic_plan
â€¢ De Meza, D.E., & Webb, D.C. (1987). Too much investment: A problem of asymmetric information. Quarterly Journal of Economics, 102, 281-292.
â€¢ Diamond, D., & Rajan, R. (2001). Liquidity risk, creation and financial fragility: A theory of banking. Journal of Political Economy, 2, 287-327.
â€¢ Doblas-Madrid, A., & Minetti, R. (2009). Sharing Information in the Credit Market: Contract- Level Evidence from U.S. Firms. Michigan State University.
â€¢ Drzik, R. (1995). Private Credit in 129 Countries. Journal of Financial Economics, 84(2), 299-329.
â€¢ Ekumah, E.K., & Essel, T. (2013). Information is power: The Problem with Credit Accessibility in Rural Banks in Ghana. University of Capetown.
â€¢ Freimer, D., & Gordon, R. (1965). â€œDeterminants of Bank Lending Performance in Germanyâ€. Schmalenbach Business Review, 52, 344 â€“ 362.
â€¢ Furletti, M.J. (2002). An overview and history of credit reporting. Available at SSRN 927487.Retrievedfromhttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=927487
â€¢ Gaitho, N.W. (2013). The role of credit reference bureaus on credit access in Kenya. European Scientific Journal, 9(13), 1857 â€“ 7881.
â€¢ Gakobo, C. (2014). Credit Risk Management and Profitability of Commercial Banks in Kenya. Unpublished research paper presented to AIBUMA 2011, School of Business, University of Nairobi, Nairobi-Kenya.
â€¢ Giannetti, R., Jentzsch, T., & Spagnolo, A. (2010). Informational asymmetries, financial structure and financial intermediation. Journal of Finance, 32(2), 371â€“87.
â€¢ Glennon, D., Kiefer, N.M., Larson, E.C., & Choi, H. (2008). Development and Validation of Credit Scoring Models. Journal of Credit Risk, 23(4), 56-78.
â€¢ Hansen, J.M. (2004). Insuring confidentiality of individual records in data storage and retrieval for statistical purposes. AFPS proceedings of the November 2004 fall joint computer conference.
â€¢ Inkumbi, M. (2009). Beyond the 5Cs of Lending. Accounting, Auditing and Accountability Journal, 16(4), 640-661.
â€¢ Jappelli, T., & Pagano, M. (2010). Information Sharing, Lending and Defaults: Cross-Country Evidence. Journal of banking and Finance, 26(10), 2017-2045.
â€¢ Jin, L., & Leslie, A. (2003). A Study on the Mechanism for Sharing Credit information. Bank of Korea.
â€¢ Kabiru, P. (2007). The effects of listing of loan defaulters by credit reference bureaus on non-performing loans of commercial banks in Kenya. Unpublished MBA Paper, University of Nairobi.
â€¢ Kisengese, G. (2014). The impact of credit information sharing on the level of non - performing loans of commercial banks in Kenya. Unpublished MBA Research Paper, University of Nairobi.
â€¢ Kothari, C.R. (2004). Research methodology: Methods and techniques. New Age International.
â€¢ Macharia, A. (2013). The Relationship between Credit Risk Management Practices and Loans Losses A Study on Commercial Banks in Kenya. Unpublished MBA paper the University of Nairobi.
â€¢ Miller, M.J. (2003). Credit reporting systems around the globe: the state of the art in public and private credit registries. In World Bank. Presented at the Second Consumer Credit Reporting World Conference, held in San Francisco, California, October.
â€¢ Mishkin, T. (2008). Determinants of Bank Interest Spread in Estonia, EESTIPANK Working Paper No 1/2008.
â€¢ Mugenda M.O., & Mugenda A. (2008). Research Methods: Qualitative and Quantitative Approaches. African Centre for Technology Studies, Nairobi, Kenya.
â€¢ Oludhe, K. (2011). The effect of credit risk management on financial performance of commercial banks in Kenya. Unpublished MBA Paper, University of Nairobi.
â€¢ Ozdemir, O., & Boran, L. (2008). An empirical investigation on consumer credit default risk (No. 2004/20).
â€¢ Rukwaro, M.W. (2001). Credit rationing by Micro Finance Institutions and its Influence on the operations of Small and Micro Enterprises. MBA Project, University of Nairobi.
â€¢ Sindani, M.N. (2012). Effectiveness of credit management system on loan performance: Empirical evidence from micro finance sector in Kenya. International Journal of Business, Humanities and Technology, 2(6).
â€¢ Stiglitz, J.E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. American Economic Review, 71, 393-410.
â€¢ Stiglitz, J.E. & Weiss, A. (2008). Credit rationing in markets with imperfect information. American Economic Review, 71, 393-410.
â€¢ Turner, S., & Varghese, H. (2007). Risk Management in Banking: Theory and Applications of Assets and Liability Management. Banking Publication, Kamakura, Honolulu, HI.
â€¢ Walsh, C.E. (2003). Monetary Theory and Policy. Boston: MIT Press, International Edition.
â€¢ Weston, J.F., & Eugene, F.B. (2014). â€œEssentials of managerial financeâ€. USA.
â€¢ World Bank (2009). Finance for All? Washington, DC: World Bank.
â€¢ Yun, T. (2009). Optimal Bank Interest Margin under Capital Regulation and deposit Insurance. Journal of Financial and quantitative Analysis, 27(1), 143-149.
How to Cite
- Papers must be submitted on the understanding that they have not been published elsewhere (except in the form of an abstract or as part of a published lecture, review, or thesis) and are not currently under consideration by another journal published by any other publisher.
- It is also the authors responsibility to ensure that the articles emanating from a particular source are submitted with the necessary approval.
- The authors warrant that the paper is original and that he/she is the author of the paper, except for material that is clearly identified as to its original source, with permission notices from the copyright owners where required.
- The authors ensure that all the references carefully and they are accurate in the text as well as in the list of references (and vice versa).
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under aÂ Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (SeeÂ The Effect of Open Access).
- The journal/publisher is not responsible for subsequent uses of the work. It is the author's responsibility to bring an infringement action if so desired by the author.