Unsystematic Risk Factors and Mortgage Non- Performing Loans in Kenya: Evidence from Commercial Banks

Commercial banks face severe challenges relating to their processes due to variations in the financial system. Identifying methods for reducing mortgage defaults and reducing the level of nonperforming loans is very important. Mortgage defaults occur because of complex factors. The amounts of mortgage non-performing loans depend on unsystematic risk factors which have an effect on mortgage loans of commercial banks. The stronger the effect of such factors, the less useful is diversification across a large number of borrowers and the stronger are the fluctuations in portfolio losses over time. The study looked at unsystematic factors and mortgage non-performing loans in Kenya’s commercial banks. Annual panel secondary data spanning from 2014 to 2019 was obtained from the Central bank of Kenya, Banking Supervision report and Kenya National Bureau of Statistics. The six year period was chosen because of availability of Mortgage secondary data. A panel fixed effects regression model was employed to address the objective of this study. The fixed effects panel regression model results indicated that capital asset ratio and lending rate had negative and statistically insignificant effect on Mortgage non-performing. Loans to deposit ratio and bank size results indicated a positive and statistically significant effect on mortgage non-performing loans implying that loans to deposit ratio and bank size affects mortgage non-performing loans in Kenya’s commercial banks. ROA results indicated a negative but statistically significant effect on mortgage non-performing loans. The study recommended enactment of internal policies by banks in regard to unsystematic factors in order to minimize the surge in mortgage non-performing loans especially in Kenya.