Credit Risk Management and Performance of Mortgage Lending Commercial Banks in Kenya
Abstract
In spite of Kenya’s mortgage market having grown substantially, it is dominated by large mortgage lending commercial banks pointing to possible restrictions to entry or a likelihood of high risk for tier II and III commercial banks in Kenya. In 2017, Kenyan mortgage lending commercial banks recorded an average gross non-performing loan ratio of 10.3 percent against the industry recommended Central Bank of Kenya average of 4 percent. In 2018, Kenyan mortgage industry assets was approximated to be 2.5 percent relative to the country’s gross domestic product with about 24,458 mortgage accounts in the industry. The sector has also recently experienced increased non-performing loans. Thus, the study sought to evaluate the influence of credit risk management on performance of Kenya’s mortgage lending commercial banks with the objective of establishing influence of delinquency rates and value at risk on credit risk management of Kenya’s mortgage lending commercial banks. Credit history score acted as moderating variable. Merton’s Default Theory, Portfolio Theory and Theory of Information Asymmetry guided this study. A census survey of Kenya’s 34 mortgage lending commercial banks was utilized. Explanatory and descriptive research designs were adopted. The researcher used secondary panel data covering the period 2012 to 2018 with a record survey sheet as the data collection tool. Data was collected from published audited reports of mortgage lending commercial banks submitted to Central Bank and analyzed using STATA subject to various diagnostic tests. Panel regression of coefficients findings indicated there was a positive and significant relationship between delinquency rate and performance of mortgage lending commercial banks. There was a negative and significant relationship between value at risk and performance of mortgage lending commercial banks. Credit history score had significant moderating effect on relationship between credit risk management and performance of mortgage lending commercial banks in Kenya since coefficient of determination rose after moderation.
Key Words: Credit Risk Management, Delinquency rate, Value at Risk, Credit History Score & Mortgage
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