Effectiveness of Credit Terms on Management of Non-Performing Loans in Kenyan Commercial Banks

Effectiveness of Credit Terms on Management of Non-Performing Loans in Kenyan Commercial Banks

Eunice Macrean Atieno, Caroline Ayuma, Christine Ngari

Business Management Department, School of Business, Economics and Management Science, University of Eldoret, Kenya

Publication Information

Journal Title: International Journal of Research and Scientific Innovation (IJRSI)
Author(s):Atieno, Eunice Macrean ; Ayuma, Caroline ; Ngari, Christine
Published On: 05/01/2025
Volume: 11
Issue: 4
First Page: 490
Last Page: 502
ISSN: 2321-2705

Cite this Article Atieno, Eunice Macrean ; Ayuma, Caroline ; Ngari, Christine; Effectiveness of Credit Terms on Management of Non-Performing Loans in Kenyan Commercial Banks, Volume 11 Issue 4, International Journal of Research and Scientific Innovation (IJRSI), 490-502, Published on 05/01/2025, Available at https://rsisinternational.org/journals/ijrsi/articles/effectiveness-of-credit-terms-on-management-of-non-performing-loans-in-kenyan-commercial-banks/

Abstract

This study sought to establish the effectiveness of Credit Terms on Management of Non-Performing Loans in Kenyan Commercial Banks. The specific objective was to establish how credit term was effective in managing non-performing loans by reviewing credit period, credit limit, interest rates and default term within the corporate, business and personal segments of commercial banks in Kenya. The study was guided by both the Theory of Information Asymmetry and Credit Scorecard theories. An explanatory research design was adopted employing both simple random and stratified sampling techniques. The sample comprised 222 credit officers employed in the 41 commercial banks in Kenya. Structured questionnaires were applied to the credit officers in the collection of primary data. Cronbach’s alpha and factor analysis were applied in testing both the reliability and validity of the research instruments. A multiple regression model using SPSS (Version 23) was used in the analysis of the obtained data and to test the hypotheses. The study identified that credit terms (ꞵ= .570) had a positive and significant effect on management of nonperforming loans. In regard to this new knowledge, the study recommends that credit terms be adopted by the management of commercial banks and policymakers. This will help the banks increase their profitability, enhance their growth and cope with the intense competition within the banking industry.

Keywords: Credit Terms, Credit period, Credit Limit, Interest rates, Default terms, Non–Performing Loans