The Distressing Effect of Non-Performing Assets to Asset Quality for Commercial Banks in Kenya

Abstract

Non-performing Assets is a ratio necessary when identifying financial distress effect on asset quality of financial institutions in Kenya specifically commercial banks in Kenya. Financial distress and asset quality have often been discussed separately in details, but not as satisfactorily this is because of its role of asset quality on distress risk levels of commercial banks. The current research established the distressing effect of non-performing assets on asset quality of Kenyan commercial banks. Nonloan ratio was represented by two variables: Non-performing assets to total loans ratio and Loan loss provision ratio. Thirty-eight Kenyan commercial banks were used for analysis for an eleven year period (2005-2015). Financial statements of commercial banks from CBK was used to extract secondary data for analysis. Results indicated that there a relationship between financial performance and capital adequacy regarding financial distress risk level. A correlation and panel regression analyses were carried out mainly to determine whether there was a relationship of non-performing assets and asset quality of commercial banks in Kenya, the outcome of the study indicated a positive relationship between Non-performing assets and asset quality. This study specifically gives a mindful and sense of reference to the depositor, all banking institutions including the commercial banks and policy-makers to high standards of asset quality by ensuring proper additional guidelines and controls are put in place to guard against non-performing loans.

The Determinant of Financial Performance of Indian Public Sector Banks- A Panel Data Approach

“…Whereas the other two determinants such as capital adequacy and earning quality insignificantly influenced the profitability. The results of the present study are supported by the finding of Sporta, (2018), also found a negative influence of capital adequacy on the performance of banks. The results of the present study are conflicting in the study of Iranian Banks, suggested that the CAR ratio bears a positive effect on the performance (Bateni, et al 2014).…”

“…Nagarkar (2015), implemented the principle component analysis technique to explore the banks' performance in India. Likewise, in numerous studies, ROA and ROE of the banks are the true representation of the banks' financial strength (Sporta, 2018). The financial determinants such as; Board Size and corporate governance, Bezawada, (2020); risk management, (Bastom et al 2017); operational efficiency; asset utilization; asset size (Mistry & Savani, 2015) and size of the bank (Ngware et al 2020), can be useful parameters for examining the bank's financial stability and profitability.…”

Effect of Loan Assets Classification on Financial Performance of Nigerian Listed Deposit Money Banks

“…The study found that substandard loans have positive significant statistical influence on financial performance of listed banks suggesting that the substandard loans can be used as a predictor of financial performance. This finding is in tandem with Sporta (2018) and contradicts that ofOkoh, Inim and Idachaba (2019). The result of the study using multiple regression analysis technique reveals that doubtful loans have a negative and insignificant effect on financial performance of deposit money banks in Nigeria.…”