Ownership Structure and Non-Performing Loans; the Effect of Government Ownership of Commercial Banks in Nairobi City, Kenya

Firms are seeking to be competitive world over because of the changing business environment. Banks too are seeking for means to gain competitive advantage over each other. One key parameter of achieving or attaining competitive advantage is to have sound and efficient performance. To achieve this bank need to check and compare the amount of nonperforming loans in their portfolios. The purpose of this study was to determine the effect of ownership structure on non-performing loans of commercial banks in Kenya. The study's specific objective was to establish the effect of government ownership structure on non-performing loans of commercial banks in Nairobi city. This study was guided by stakeholder theory. Cross-sectional research design was adopted by the study. The target population for this study comprised the employees of 39 commercial banks in Nairobi city, Kenya: The respondents were 117 employees who include 39 branch managers, 39 operation managers and 39 credit officers. The study adopted census survey because the numbers of respondents are few, therefore all the 117 respondents were included in the study. Questionnaire was used for collecting data. For validation of the research instruments, the researcher consulted the supervisors and other experts in this field. The study used the cronbach alpha coefficient to determine the reliability of data collection instrument. Data was analysed using both descriptive and inferential statistics. Descriptive analysis included mean, standard deviation, percentages and frequencies while inferential statistics was multiple regression and Pearson moment of correlation. The study findings indicated that, government ownership structure (β = 0.263; p<0.05), affects non-performing loans of commercial banks. The study recommends that government should consider infusing private sector-like management systems and progress the divestiture program to attract more private individuals and institutions to co-own the state corporations. In addition, policy makers should create a conducive environment which attracts foreign investors as it noted that foreign investors can possess firm-specific advantages.