ABSTRACT

Many banks in Kenya have been experiencing poor financial performance. Most of these financial problems arise from lack of credit information on the loan applicants which then affect their ability to recover both the principle and the interest. There have been efforts by the Central Bank of Kenya to advance credit information sharing on loan applicants among commercial banks so as to reduce the default rates among loan beneficiaries. This study aimed to establish the effect of credit information sharing on the performance of selected commercial banks in Kenya. The specific objectives were; to establish the effect of competitive information sharing, credit scoring, efficiency in the information gathering process and information accuracy on the performance of commercial banks in Kenya. This study employed a descriptive research design. The study was anchored on information asymmetry theory, moral hazard theory and financial intermediation theory. The population of this study entailed all the 43 commercial banks licensed under the banking Act as at 31 December 2015 in Kenya. The study used primary and secondary data. Primary data was collected using closed ended questionnaires administered on drop and pick method while secondary data was collected from CBK annual supervision reports and the banks specific audited accounts. Data was analyzed using both descriptive and inferential statistics. The qualitative data collected was analyzed using descriptive statistics such as mean, standard deviation, frequencies and percentages while inferential statistics including multiple regression analysis was performed to estimate the changes in performance following changes in credit information sharing variables. The study adopted the following model; P=α0 +β1CIS+β2CS+β3EIG+ β4IA+ εi where P = Bank Performance which is measured by Return on Investment (ROI) and Return on Equity (ROE), α0 - intercept coefficient, εi – error term (extraneous variables), CIS - Competitive information sharing, CS – Credit Scoring, EIG – Efficiency in Information Gathering, IA – Information Accuracy and β1, β2, β3 and β4=regression coefficients. Tables and charts were used to present the analyzed data. From the findings, competitive information sharing has significant effect on performance of Commercial banks. Credit scoring has significant effect on performance of Commercial banks. Efficiency in information gathering has no significant effect on performance of Commercial banks. Information accuracy has significant effect on performance of Commercial banks. The study recommends that the top management of all commercial banks in Kenya should strengthen their channels and systems of sharing information which shall significantly influence performance. The top management team of Credit Reference Bureau CRB in Kenya should improve on their credit monitoring role in the country to allow generate effective scores that commercial banks use for lending purposes. The top management of all commercial banks should pay little attention and emphasis efficiencies during the process of information collection. All financial institutions in Kenya need to safeguard the accuracy of their information sharing platforms for increased performance.