THE IMPACT OF NON-PERFORMING LOANS ON THE PROFITABILITY OF COMMERCIAL BANKS IN KENYA

Abstract

This study examined the impact of non-performing loans on bank profitability, using the information asymmetry theory and the bad management hypothesis. This study used a descriptive research design to use secondary data from 31 commercial banks in Kenya over 9 years from 2014 to 2022. The study employed multiple regression analysis techniques and descriptive statistics to determine the impact of non-performing loans in banks in Kenya. Similarly, the Ordinary Least-Squares regression method was employed, followed by examining the Fixed Effects and Random Effects techniques. According to the study results, the profitability of commercial banks in Kenya is negatively impacted by higher levels of non- performing loans. Thus, the results supported the theories of information asymmetry and bad management. The study results have managerial and theoretical implications for managers and practitioners.