Firm Characteristics and Non-Performing Loans of Commercial Banks in Kenya


  • Winfred Ndanu Ngungu Kenyatta University.
  • Dr. Farida Abdul Kenyatta University.


Banking in Kenya and the financial services in general have been identified as a pillar to achieving 2030 Vision. Banking facilitates macro-economic steadiness for long-term development which will transform Kenya to a middle economy country. The growing level of nonperforming loans among Kenyan banks has been a source of concern to all stakeholders. This research ascertained the impacts of firms-characteristics on nonperforming loans of Kenyan banks. The specific objectives were to assess the effect on liquidity, capital adequacy and bank size on non-performing loans of Kenyan banks. In addition, the research examined the moderating impact of interest rate on the relationship between firms characteristics and non-performing loans of Kenyan banks. The research relied on market power, agency, liquidity preference and capital buffer theories. Causal design was utilized in this research. The targeted population was 40 banks that were operational from 2013 to 2017. The study used a census approach. Secondary data was gathered from the audited financials of these banks. Diagnostics tests were done for multicollinearity, stationarity and hausman. Data analysis was done based on descriptive analysis and panel regression analysis. The findings from the panel regression analysis indicated that liquidity had insignificant effect on non-performing loans of commercial banks in Kenya. Capital adequacy had a significant effect on non-performing loans of commercial banks in Kenya. Bank size had a significant effect on non-performing loans of commercial banks in Kenya. Additionally, the study findings revealed that interest rate had no significant effect on the relationship between firm characteristics and non-performing loans of commercial banks in Kenya. The study recommended that bank managers should be cautious when granting loans to customers by scrutinizing each application for credit regardless of the levels of liquidity held by banks. The study also recommended that banks with larger assets can consider other investment options to diversify against the effect of high loan defaults.

Keywords: Bank Size, Capital Adequacy, Financial Intermediation, Firm Characteristics, Liquidity, Non-performing Loans, Interest Rate

Author Biographies

Winfred Ndanu Ngungu, Kenyatta University.

Postgraduate Student, MBA (Finance), Department of Accounting and Finance, School of Business, Kenyatta University.

Dr. Farida Abdul, Kenyatta University.

Senior Lecturer, Department of Accounting and Finance, School of Business, Kenyatta University.


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How to Cite

Ngungu, W. N., & Abdul, D. F. (2020). Firm Characteristics and Non-Performing Loans of Commercial Banks in Kenya. Journal of Finance and Accounting, 4(2), 31–47. Retrieved from