Macroeconomic Variables And Loan Delinquency Of Tea Manufacturing Companies Managed By Kenya Tea Growers Association.

ABSTRACT

Delinquent loans are on the rise both globally and locally leading to closures, receiverships and even collapse of institutions receiving and offering loans. Delinquent loans in the agriculture sector stood at 4% in the USA, 40% in India in 29015, 51% in Nigeria in 2012, 29,3% in South Africa in 2016. This rose from 5.45 Billion in 2009 to kshs8.383 Billion by 2015 in Kenya and at 22% specifically in the tea sector by June, 2017. The agricultural sector plays a very critical role in economic development, employment and wealth creation and as a source of revenue. Loan delinquency is becoming a major problem in the tea sector. This study therefore sought to determine the effects of macroeconomic variables considered as key macroeconomic variables, namely, lending interest, inflation, foreign exchange rates on delinquency of loans in the tea manufacturing companies managed by Kenya Tea Growers Association (KTGA) for the period Quarter 1, 2008 to Quarter 4, 2017; employing Central Bank Rate as the moderating variable. The research adopted explanatory research design approach and the population of study was 16 tea manufacturing companies managed by KTGA. Secondary data on macro-economic variables and Central bank rate as the moderating variable were obtained from the KNBS and CBK. Secondary data on delinquency of loans was collected from the Chief Executives or the Deputies of the tea manufacturing companies under study using a document review schedule. Before data was analyzed, a number of diagnostic tests were which included unit root, cointegration, multicollinearity, determination of optimal lag, normality test, heteroscedasticity, autocorrelation and stability tests. The data collected was analyzed with the use Microsoft Excel and E-Views software. The results of the study were presented in form of tables and figures. The significance of the results was tested at 95% level of confidence. Correlation analysis concluded that all the independent variables have no relationship amongst themselves since the correlation coefficients were all less than r=0.5. There existed correlation between lending interest rate and Central Bank Rate with a coefficient of 0.74, and, therefore, the CBR was dropped from the model to avoid multicollinearity. In the short-run, Error Correction Model depicts a significant effect of foreign exchange on loan delinquency (p=0.0044) for the period under study. Regression analyses depicts negative effect of lending interest rate (β = -6.25) on loan delinquency. This applies to foreign exchange rate (β = -0.22) with loan delinquency in the tea sector. Inflation rate reflected a positive effect (β = 0.26) on the dependent variable. The results of Autoregressive Distributed Lag Model (ARDL) revealed sufficient evidence of insignificant effects of the selected macroeconomic variables and loan delinquency in the long run (lending interest rate p=0.51, inflation rate p=0.99, foreign exchange p=0.76). The macro economic environment should therefore, be monitored by the regulators and they should take fiscal and monetary measures to ensure management of loan delinquency in the tea sector, and the economy as a whole. Besides macroeconomic forces, there are other factors piling up on loan delinquency in the tea sector, which can be ascertained in future research such as regulatory weaknesses, internal factors, corruption, mergers and acquisitions and institutional stability.

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APA

ISABELLA, K (2021). Macroeconomic Variables And Loan Delinquency Of Tea Manufacturing Companies Managed By Kenya Tea Growers Association.. Afribary. Retrieved from https://afribary.com/works/macroeconomic-variables-and-loan-delinquency-of-tea-manufacturing-companies-managed-by-kenya-tea-growers-association

MLA 8th

ISABELLA, KOGEI "Macroeconomic Variables And Loan Delinquency Of Tea Manufacturing Companies Managed By Kenya Tea Growers Association." Afribary. Afribary, 02 Jun. 2021, https://afribary.com/works/macroeconomic-variables-and-loan-delinquency-of-tea-manufacturing-companies-managed-by-kenya-tea-growers-association. Accessed 30 May. 2024.

MLA7

ISABELLA, KOGEI . "Macroeconomic Variables And Loan Delinquency Of Tea Manufacturing Companies Managed By Kenya Tea Growers Association.". Afribary, Afribary, 02 Jun. 2021. Web. 30 May. 2024. < https://afribary.com/works/macroeconomic-variables-and-loan-delinquency-of-tea-manufacturing-companies-managed-by-kenya-tea-growers-association >.

Chicago

ISABELLA, KOGEI . "Macroeconomic Variables And Loan Delinquency Of Tea Manufacturing Companies Managed By Kenya Tea Growers Association." Afribary (2021). Accessed May 30, 2024. https://afribary.com/works/macroeconomic-variables-and-loan-delinquency-of-tea-manufacturing-companies-managed-by-kenya-tea-growers-association

Document Details
KOGEI ISABELLA Field: Finance Type: Thesis 100 PAGES (20049 WORDS) (pdf)