Effects of Inflation on Loan Repayment Behaviour in Kenyan Banks: A Case Study of Habib Bank A.G. Zurich 2014

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dc.contributor.author Murigi, Simon Kiarie
dc.date.accessioned 2018-10-12T09:24:01Z
dc.date.available 2018-10-12T09:24:01Z
dc.date.issued 2014
dc.identifier.uri http://erepo.usiu.ac.ke/11732/4035
dc.description A project Report Submitted to the Chandaria School of Business in Partial Fulfillment of the Requirement for the Degree of Executive Masters in Organizational Development (EMOD) en_US
dc.description.abstract The purpose of this research was to determine-the effects of inflation on loan repayment behaviour. The research was guided by the following research questions: (i) What are the effects of inflation on loan repayment behaviour? (ii) To what extent is inflation connected to defaults in payment of loans? (iii) How does inflation contribute to changes in loan repayment? A correlation research design was used to conduct the study. A sample of 30 employee of at Habib Bank AG Zurich was collected. Simple random sampling technique was used in this study. The primary data was collected using structured questionnaires. The data was analyzed using descriptive and inferential statistics. Descriptive statistics involved the mean while inferential statistics involved the calculation of the correlation coefficient in order to identify the relationships amongst the independent and dependent variables. The tool used to analyze and present the results in figures and tables were SPSS and Excel software. Three conclusions were drawn from the findings of this study. First, inflation effects behaviour and in our case loanees loan repayment behaviour .Second, that negative impact of high inflation rates on loan repayment .Third ,that inflation does indeed have an impact on loan repayment . According to the findings, the study concluded that changes in inflation affected loan repayment behaviour, clients were not able to repay loans which lead default if no intervention was introduced. There was behavioural change that was necessitated by the external forces that were beyond the clients and the banks control. Based on the findings, study was able to establish that there is a correlation between inflation and loan repayment. In times of high inflation loan repayment capabilities are at times impaired and hence banks should be able to adjust repayment period of the borrowers affected to avert default. The study further lead to the conclusion that inflation affected loan repayment, clients payments were affected positively on low inflation and negatively on high inflation rates which lead to default. Since inflation affects loanees behaviour towards loan repayment, both the client and the bank should keep an eye on the inflation rates and should be able to predict movement. The client can hedge against inflation impact by agreeing on a flat rate with the lender and or requesting for an extension of the repayment period to ease the financial strain and hence be able to sustain or reinforce good repayment behaviour. The bank can as well elicit the help of Credit reference bureau and other debt collection agencies to help positively reinforce the loan repayment behaviour. The study recommended that since there was a direct correlation to changes in inflation and loan repayment behaviour, Keep an eye on the inflation rate. It was important for banks and borrowers to keep an eye on inflation and come up with measures that are mutually favourable. Rescheduling payment would save the bank from loss of money through default, extra provisions for loan defaults, cost of following up the defaulters. The bank should following up with the borrower, monitoring the repayment behaviour so as to identify default tendencies before it is too late (before default) and the strategy should recommended default mitigation mechanisms. The borrower should be in a position to assess the impact of inflation to disposable income and incase of difficulties meeting loan repayment obligations request the bank for a reasonable repayment schedule. Another recommendation was to keep track of inflation on a month to month basis with the aim of helping Habib bank AG Zurich and the borrowers know the likelihood of hard economic times and hence help both the lender and the borrower plan ahead. The lender can begin preparing to make provision as a prudent measure so that when the actual default happens it doesn’t have to strain the banks bottom line. HBZ should upon sighting signs of high inflation begin to closely monitor the borrower and in some cases suggest rescheduling to the borrower to avoid making extra provision where the shareholders are sensitive on the profits of the banks. The benefit of planning ahead to the borrower would be better credit history. The recommendations should be agreeable to both HBZ and the borrower (Loanee). On loan the impact of inflation on loan repayment, the study recommended that Habib bank AG Zurich should formulate strategies on what should be done in times of high inflation which should include following up with the borrower, monitoring the repayment behaviour so as to identify default tendencies and the strategy should recommended default mitigation mechanisms. Some of the strategies include conservative lending, security perfection, timely period review and monitoring and adequate provisions in line with CBKs prudential guidelines. Business and corporate clients that have been borrowed for the business should be required on an annual basis to submit audited financial statements; these would help the bank in monitoring and evaluation of the business. en_US
dc.language.iso en en_US
dc.publisher United States International University - Africa en_US
dc.subject Inflation en_US
dc.subject Loan Repayment Behaviour en_US
dc.subject Kenyan Banks en_US
dc.subject Habib Bank A.G. Zurich en_US
dc.title Effects of Inflation on Loan Repayment Behaviour in Kenyan Banks: A Case Study of Habib Bank A.G. Zurich 2014 en_US
dc.type Thesis en_US

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