Customer Information Sharing And The Performance Of Selected Commercial Banks In Kenya

ABSTRACT

Commercial banks play a very important role in the economic resource allocation on an economy by taking deposits from customers and then lend thus acting as an intermediary. Therefore it is of essence for commercial banks to remain profitable. In the wake of the banking crises in the last decade, Credit Reference Bureaus have been introduced in the Kenyan banking sector to facilitate the concept of credit information sharing, to mitigate information asymmetry and credit risk. In Kenya, there are three licensed Credit Reference Bureaus, namely; CRB Africa which was licensed in 2010, Metropol Ltd licensed in April 2011 and Credit info Credit Reference Bureau Limited which was licensed in May, 2015. This study therefore sought to establish the relationship between customer information sharing and the performance of selected commercial banks in Kenya. The specific objectives of the study were to establish the effect of customer’s credit report on the performance of commercial banks in Kenya, the effect of the customer information on the performance of commercial banks in Kenya and finally the effect of portfolio at risk on the performance of commercial banks in Kenya. This study was a quantitative research that adopted a correlational research design. The population consisted of all the listed commercial banks in the country; Kenya and the credit reference bureaus licensed as at 31st Dec 2013. The Kenyan Banking Sector is currently made up of about 50 financial institutions with 44 of these being commercial banks between the periods 2011 to 2015.Cooper and Schindler (2003) argue that a sample size of between 10-30% of the target population can be adequate for generalization of the research findings to the study provided the sample is scientifically determined. Thus stratified proportionate random sampling technique was used to select the sample of 20 commercial banks and data was analyzed using both qualitative and quantitative methods and explanation given in prose. The banks were selected based on level of precision, the level of confidence, and finally the degree of variability in the attributes being measured. The data that was extracted included: bank supervision annual reports, the number of credit reports requested by commercial banks in Kenya, portfolio at risk, ROA, ROE and NIM from published reports. The sources were chosen because of the credibility as the data on loans defaulting and credit information request have been verified by the central banks on-site and off-site inspections. The researcher utilized time series empirical data on the variables. Data analysis was descriptive as well as regression analysis. The regression model was found to be well specified and found that credit information sharing positively and significantly influenced banks’ profitability. The study shows a very strong positive relationship between customer information sharing and the performance of commercial banks in Kenya. In addition, the findings indicate that there was no strong relationship between the characteristics of borrowers and the performance of loans of commercial banks in Kenya. The study recommends that an open system needs to be enhanced to allow financial institutions as well as non-bank entities retailers, telecom and utility companies access to this information so as to know which clients to serve and what differential price to charge to cover the risks. To ease customer information sharing, it should be accessible easily and at no cost.