THE EFFECT OF BORROWERS-MANAGERS ASYMMETRIC INFORMATION ON NON-PERFORMING LOANS IN COMMERCIAL BANKS IN KENYA

2024-10-24T23:14:57-05:00

Non-performing loans has persistently rise in commercial banks in Kenya and it is perceived that borrowers-managers asymmetric information is the cause. Previous studies have focused on different aspects of macroeconomic and micro economic factors but non-performing loans has continue to rise aspiring need to look at the effect of micro-economic or bank specific factor such as borrowers-managers asymmetric information on non-performing loans. Previous studies that looked at borrowers-managers asymmetric information between borrowers and lenders focused on adverse selection of borrowers as main cause of nonperforming loans and not in context of management moral hazards, management opportunism and transaction costs economic theory. For bank size even though bank is associated with economies of scales and efficiency, the moderating effect of bank size in borrowers-managers symmetric information on non-performing loans remain a puzzle. This study investigated the effect of borrowers-managers asymmetric information on non-performing loans in commercial banks in Kenya. This study also looked into the moderating effect of bank size on the relationship between borrowers-managers asymmetric information and non-performing loans. A descriptive survey research design was adopted with use of panel data. Secondary data for analysis was obtained from financial statements of commercial banks and central bank of Kenya supervisory reports. Time scope covered 10 years from 2013 to 2022 as the period is recent and there was enough data available and reliable for the study. Geographical scope was the 39 Commercial banks licensed and operating in the republic of Kenya. Non-performing loans was measured using non-performing loans to total loans. The study used interest rate spread to measure borrowers-managers asymmetric information. Bank size measured by logarithm of total assets was used as moderating variable in the study. The research established that borrowers-managers asymmetric information had significant effect on non-performing loans in commercial banks in Kenya . The study however confirmed that there was no significant moderating effect of bank size in the relationship between borrowers-managers asymmetric information on non-performing loans.

Reviewed Journal International of Financial Management

THE EFFECT OF BORROWERS-MANAGERS ASYMMETRIC INFORMATION ON NON-PERFORMING LOANS IN COMMERCIAL BANKS IN KENYA