INFLUENCE OF CREDIT REFERENCING ON COMMERCIAL BANKS’ CREDIT LENDING DECISIONS IN KENYA - A CASE OF COMMERCIAL BANKS IN MOMBASA COUNTY IN KENYA

Abstract

The banking industry has in the past been faced with the challenges of obtaining
comprehensive information on clients’ repayment history for use during the credit assessment
process and eventual disbursement of loans. This has led to poor lending decisions as
defaulters move from one bank to another to secure credit facilities. The general objective of
this study was to assess the influence of credit reference bureaus on commercial banks credit
lending decisions in Kenya. The specific objectives of the study were; to investigate the
influence of credit information sharing on commercial banks’ credit lending decisions in
Kenya, to analyze the influence of borrower credit reports on commercial banks’ credit
lending decisions in Kenya, to assess the influence of borrower future credit risk identification
on commercial banks credit lending decisions in Kenya and to assess the influence of
borrower repayment ability on commercial banks credit lending decisions in Kenya. The study
was supported by credit rationing theory, modern portfolio theory, corporate risk management
theory and agency theory. This research adopted a cross-sectional survey research design
aimed to collecting large number of quantitative data at a point in time to address the
formulated hypotheses. The target population was 41 commercial banks which in total have 51
branches in Mombasa County in Kenya. Census technique was used as a sampling procedure
therefore all banks in Mombasa County were included in the study. The study collected data
from all the respondents in the rank of branch managers, credit managers, and mortgage
managers from all commercial banks in Mombasa County in Kenya. Primary data was
collected by use of structured questionnaires which was distributed through the drop and pick
method. Secondary data collected from various bank’s websites, in annual and published
financial statements, in national newspapers, during annual general meetings and in-house
magazines, important business disclosures in journals, manuals and the various firm’s
documents were used to cross validate the primary data information collected Data analysis
was by descriptive statistics and inferential statistics using Statistical Package for Social
Sciences (SPSS) version 24. The study analyzed data through means, medians and standard
deviations as descriptive statistics while correlation, regression and ANOVA analysis were the
inferential statistics used. The data was presented by the use of tables and figures for purpose
of giving a pictorial view of the results. The study provided a clear-cut mechanism of lending
decisions and efficiency to the business fraternity in Mombasa. The study revealed that credit
referencing, Credit information sharing, Borrower credit reports and Borrower repayment  ability had a statistically significant influence on commercial banks’ credit lending decisions
in Kenya as their R2
and Anove were 63.6% and F = 39.249, p = 0.000 respectively. The study
recommended that commercial banks in Kenya should continue working closely with credit
referencing and improvise real time reports sharing mechanisms so as to boost commercial
banks’ credit lending decisions in Kenya. The study was important since it led to awareness in
the commercial bank’s credit lending decisions. This study has a possibility of being used as a
benchmark to borrowing and lending in future.