EFFECT OF INFLATION ON NON-PERFORMING LOANS OF NON-LISTED COMMERCIAL BANKS IN KENYA
Abstract
This study investigated the effect of inflation on non-performing loans (NPLs) in non-listed commercial banks in Kenya. The research aimed to address the growing concern of high NPL levels within the banking sector, particularly among non-listed institutions. An exploratory research design was employed, utilizing panel data from 41 non-listed commercial banks over the period from 2013 to 2021. A panel regression model was applied to analyze the relationship between inflation and NPLs, alongside other systemic risk factors such as interest rates and exchange rates. The findings indicated that inflation had a statistically insignificant negative effect on NPLs in the long term; however, a significant positive effect was observed in the short term. These results suggest that while inflation may not be a major driver of NPLs over time, it can substantially impact loan performance in the short run. The study concludes that effective monetary policies are crucial for mitigating the immediate effects of inflation on NPLs. It recommends that policymakers prioritize short-term strategies to manage inflation and its repercussions on loan repayment capabilities, ultimately enhancing the stability of the banking sector.
Keywords: Inflation, Non-Performing Loans, Non-Listed Commercial Banks, Kenya, Systemic Risk Factors
CITATION: Lekupanai, L., & Makori, D. (2024). Effect of inflation on non-performing loans of non-listed commercial banks in Kenya. The Strategic Journal of Business & Change Management, 11 (4), 1007 – 1014. http://dx.doi.org/10.61426/sjbcm.v11i4.3135
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DOI: http://dx.doi.org/10.61426/sjbcm.v11i4.3135
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