Effect Of Supply Side Characteristics On Uptake Of Loans On Commercial Banks In Kenya: Case Study Of Listed Banks In Kenya

Abstract

Loans are key component in the growth of a country, and therefore the uptake of loans in Kenya by consumers has acquired significant interest by central bank of Kenya and financial institutions. Loan uptake is affected by a number of factors that are either supply side factors or demand side factors. This study was carried out with an objective of investigating the effects of supply side characteristics on uptake of loans from commercial banks in Kenya. Specifically, the study was guided by the following objectives: to determine the effect of bank size on uptake of loans from commercial banks in Kenya, to determine the effect of interest rates on uptake of loans from commercial banks in Kenya, to determine the effect of Liquidity on uptake of loans from commercial banks in Kenya, to determine the moderating effect of ownership structure on the relationship between supply side characteristics and uptake of loans from commercial banks in Kenya. The study was conducted using a correlation-study design. The target population for the study comprised all the 43 commercial banks registered by the central bank of Kenya. A sample size of 11 commercial banks was selected for the study. The study was using secondary data, which was quantitative in nature and was collected from the annual financial statements of the banks, central bank of Kenya reports and Kenya bankers association reports. The data collected was for the period 2007-2016. The quantitative data collected was analyzed by the use of panel data analysis and correlation analysis. The data was presented though tables, frequencies, charts and graphs. From the foregoing presented and analyzed findings bank specific factors is a significant firm characteristic of loan uptake among commercial banks in Kenya. Thus, it can be concluded that more assets portends loan uptake in commercial banks. The study concluded also indicates that large banks exhibits higher loan uptake than small and medium commercial banks. Lending rates, Liquidity and ownership structure were not found to be key contributors to loan uptake in commercial banks in Kenya. Thus, it can be concluded that increasing or decreasing lending rates, liquidity and ownership on their own does not necessarily results to loan uptake in commercial banks. The whole regression analysis was statistically significant indicating that bank specific factors significantly determines the loan uptake in commercial banks in Kenya. However, the significance of bank specific factors was small thus commercial banks in Kenya should put more emphasis on other bank specific factors not included in the model. The study recommends that commercial banks should pay more attention to bank assets that are found to have positively influence on loan uptake in Kenya. Further the study recommends the need for banks to pay significant attention to bank specific factors as the study revealed bank specific factors influence loan uptake. From the study findings, the study recommends the need for bank to pay attention to other bank specific factors not included in the model. The study recommends the need for government to develop policies and regulations that will enhance asset based of commercial banks.