International Journal of Management and Commerce Innovations ISSN 2348-7585 (Online) Vol. 7, Issue 2, pp: (453-460), Month: October 2019 - March 2020, Available at: www.researchpublish.com
CREDIT INFORMATION SHARING AND PROFITABILITY OF COMMERCIAL BANKS IN NAKURU COUNTY, KENYA MIRIAM MUMBI NGIMA1, JOSEPH THEURI2 1
MBA Student, Accounting and Finance, School of Business, Kenyatta University, P.O. Box 43844-00100, Nairobi, Kenya, Location: Nairobi. Email address: mmumbi06@gmail.com 2
Lecturer, Accounting and Finance Department, School of Business, Kenyatta University, P.O. Box 43844-00100, Nairobi, Kenya, Location: Nairobi
Abstract: The study focused on analyzing credit information sharing effect on Commercial banks’ profitability in Nakuru County, Kenya. The research’s objectives revolved around establishing the effects of borrowers credit history information sharing, collateral information sharing, customer identification information sharing and profitability of Commercial banks in Nakuru County. The research was supported by adverse selection, the theory of delegated monitoring and moral hazard theory. The study useda descriptive research design, while census approach was used in this study. The unit of observation was the 32 commercial banks in Nakuru County while the unit of analysiswas the 32 heads of credit departments among the banks. The study used both structured and unstructured questionnaires with closed and open-ended questions to gather relevant data. The study used both descriptive and multiple regression analysis. The research conclusion that credit information sharing positively and significantly affect profitability of commercial banks in Nakuru County. Also, borrower’s credit history information, credit information sharing cost, customer identification information and collateral information sharing had a significant extent influenced commercial banks’ profitability in Nakuru County. The credit information sharing enhanced banks’ ability to get data on loan security, guarantors and other forms of collateral to reduce credit default. It was concluded that CIS enabled banks to identify, regulate and avoid clients with poor credit history. The research recommendation is that banking institutions need to have their own client credit history records to supplement those by the CRBs. The banks need all to be enrolled with all the registered CRBs in Kenya to enable access sufficient client information before extending credit. The research further puts the recommendation that the banks need to invest and put more focus on customer database for easy identification of customers, their collateral and credit history. Keywords: Borrowers’ Credit History Information, Credit Information Sharing Cost, Customer Identification Information and Collateral Information Sharing, Profitability, Commercial Banks.
1. INTRODUCTION 1.1 Background of the Study Commercial banks play key roles in the growth and development of economies globally. In a study by Vong and Fellow Scholars (2009) posits that “the main revenue source is from interest income, these amounts to 80% of earnings from banks.” The other revenue sources of bank are from securities market are dividends and gains. Vong et al. (2009) indicated that other small sources of income like service charge on deposit accounts and earnings from trust activities. Commercial banks main role is lending which serves as a major income source for them. In the banking sector, loans have the highest returns on banks‟ balance sheet. Therefore, the more loans a bank offers, the more revenue they generate translating to more profits. Abreu and Mendes (2000), state that banks must be cautious in lending loans since if they lend more to borrowers, they create exposure on their end regarding default and liquidity risks which have adverse impact on profitability and long term business.
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