Predatory Loan Processing Practices and Their Influence on Loan Performance among Commercial Banks in Kenya

Majory Wangari ^[3] | David Kiragu ^[11] | Dr. Allan Kuria ^[2] | Dr. Beth Kariuki ^[2]

Abstract: Their role of commercial banks in any economy is critical and is known to have a strong correlation with development of a nation. In Kenya the sector contributed approximately 5% to Gross Domestic Product (GDP). The nation continues to depend on this sector to support the progressive delivery of Kenya vision?s 2030 economic Pillar. However, in the last decade, loan performance has deepened by over 185 points raising concern over the stability of the sector. Recent statistics indicate that the consolidated nonperforming loans rose to slightly over Kes 0.5 trillion by 2022. The objective this study was to examine the influence of loan processing practices on loan performance among commercial bank in Kenya. The study applied a post - positivism research philosophy and a mixed research design. The sampling frame and unit of analysis was the 39 commercial banks in Kenya (CBK, 2022). The unit of response was 234 managers of these 39 commercial banks. A closed ended questionnaire was used to collect primary data for the predictor and predictand. for triangulation, a secondary data collection sheet was used to collect secondary data for the regresand. Stability and construct validity of instrumentation were assessed using Cronbach alpha coefficient and Kaiser - Meyer - Olkin coefficients respectively using data from managers of three Micro Finance Banks in Nairobi, Kenya. Simple linear regression was used for inferential analysis after testing the data for Gaussian distribution, linearity and independence. The study found that 35.3% of the variations in loan performance could be explained by loan processing practices and that there is a statistically significance influence of these practices on loan performance. These practices include processing period as selling point, loan approval time, loan processing period appetite, disbursement timing, loan take over processing, loan processing commission, number of loans motivation, high - value to low - value loans, preferences, aggressive selling and marketing and preference to low level documentations. The study recommended that commercial banks should scan, analyze and standardize loan processing processes as they have a bearing on the quality and profiler of borrowers.

Keywords: Triangulation, loan processing practices, predatory, loan performance

Edition: Volume 12 Issue 11, November 2023,

Pages: 1396 - 1402