Ethical Lending for Better Loan Performance: A Case for Utilitarianism in Commercial Banks


  • Godfrey M. Thuranira University of Nairobi
  • Cyrus Iraya University of Nairobi
  • Winnie Iminza Nyamute University of Nairobi
  • Onesmus Nzioka Mutunga University of Nairobi



The purpose of this study was to determine the effect of the ethics of credit officers on the level of loan quality and hence the performance loans in a commercial bank at the branch level. The study followed a positivist philosophy and a cross-sectional survey research design. Based on Slovin (1960), the study targeted 310 branches out of 1,384 population branches from 43 licensed commercial banks in Kenya. Lending ethics are measured using a score mimicking the Sustainalytics for Responsible Investment Services (SRIS) criteria for measuring the ethics indices. Loan performance was the five-year average of percentage-performing loans for a branch. Ordinary Least Square results (R=0.211; R-Square =0.044) confirmed a weak, positive relationship between lending ethics and loan performance. The ANOVA of the model was significant and (the coefficient=0.237; significant value=0.000) confirmed the positive relationship, which is statistically significant at 0.05 level of significance. It implies that bank branches or lenders who inculcate ethical lending can achieve higher loan recoverability. The results may not be generalisable in all contexts. Further testing of the relationship is needed in different contexts, including comparative analysis of bank strata and other lending institutions for inferential tests. However, the study provides a sound input on the issue of ethics in lending. The silence in research on the significance of lending ethics, loan quality, and credit market performance is incongruous with the potential damage of financial markets when messaging on the essence of ethics is relaxed. The paper provides implications for lenders to develop mechanisms to raise the bar on the ethics of their credit officers. Lenders should be blamed for internal causes of credit non-performance. But they can overcome the blame by overcoming the clash of the morals of their staffs and agents with the banks concept of ethics. Emphasis on utilitarianism, so that their officers focus is optimal lending by maximizing common good, and not individual gains can help. This paper fills the gap on why ethics at the specific point of lending need to be emphasised and enhanced to increase loan performance for a thriving, sustainable credit markets.

Key Terms: Lending Ethics, Loan Performance, Commercial Bank Branches

Author Biographies

Godfrey M. Thuranira, University of Nairobi

PhD Student, Department of Finance and Accounting, University of Nairobi, ORCID iD:

Cyrus Iraya, University of Nairobi

Senior Lecturer, Department of Finance and Accounting

Winnie Iminza Nyamute , University of Nairobi

Senior Lecturer, Department of Finance and Accounting

Onesmus Nzioka Mutunga , University of Nairobi

Senior Lecturer, Department of Finance and Accounting


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How to Cite

Thuranira, G. M., Iraya, C., Nyamute , W. I., & Mutunga , O. N. (2023). Ethical Lending for Better Loan Performance: A Case for Utilitarianism in Commercial Banks. Journal of Finance and Accounting, 7(11), 30–43.




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