Evaluation of the Factors Leading to Loan Default at Equity Bank, Kenya

This paper gives an evaluation of the causes of loan default among the customers of Equity bank. A sample of 80 respondents out of 240 respondents which comprised of both the bank managers and loan defaulters at Equity Bank was used in the study. This represented 33% of the target population. The population was stratified into bank managers and loan defaulters while loans were stratified into performing and nonperforming loans. Data was collected using two sets of questionnaires which were administered separately to the target population. Data was analyzed using Microsoft Excel Data Analysis Tools. In the evaluation of the causes of nonperforming loans, the paper considered the contribution of the factors such as the banks’ lending practices as well as the economic backgrounds and financial decision making among loans recipients at Equity Bank Ltd. Microsoft Excel Data Analysis Tools were used to establish the relationship between amounts of loan advanced to an individual and the amount of loan defaulted. The paper established that the major factors influencing nonpayment of borrowed loans at Equity Bank Ltd were both internal and external. The paper recommended that banks’ credit policies be reviewed to match the highly volatile economic trends within financial markets with a strong emphasis on institutional appraisals on credit worthiness. Keywords: Loans, Bank, Default

Lending Rates and its impact on Economic Growth in Kenya

After the liberalization of interest rates in Kenya in 1992, there has been an upward trend in the interest rates. Therefore, there is a need to investigate the factors influencing lending interest rates and their impacts on the general performance of the economy. This study examined various factors influencing lending interest rates and their impacts on the general performance of the economy. Specifically, it: investigates the effects of international interest rates on local lending interest rates in Kenya and determines the effects of budget deficit financing on lending interest rates. Annual secondary time series data spanning from 1980 to 2010 obtained from the World Bank annual reports, IMF annual reports, annual government publications and reports and other relevant publications were used. This data was parametrically analyzed using EVIEWS to present descriptive and inferential statistics. Unit roots, cointergration tests and the Error Correction Model were carried out to investigate the dynamic behavior of the model. Results of the study indicates that the impact of budget deficit and inflation on interest rates in Kenya were positive and significant. This implies that any attempt to control the rise in interest rates must pay attention to expansionary macroeconomic policies and reduce the budget deficit. Such policies should address structural and non-structural causes of inflation. For instance, it involves enacting policies to reduce the cost of doing business in Kenya. Keywords: Lending rates, Economic growth and Error Correction Mode