An Assessment of The Performance of Unsecured Personal Loans By Commercial Banks The Case of Commercial Banks In Nakuru County Kenya

Abstract

In recent years, commercial banks have changed lending guidelines to make borrowing more accessible to include unsecured personal loans. However, the performance of unsecured personal loans has caused anxiety. The main concem stems from the fear that unsecured loans are riskier than other loan products. Commercial banks are faced by risk in the provision of credit facilities. The risk factors include loan under repayment, loan default and even collapse. The main purpose of this study is to assess the performance of unsecured personal loans in commercial banks. It adopted a descriptive survey. The study was conducted within selected commercial banks in Nakuru district. The banks were purposefully selected from the existing commercial banks in the district based market leadership and long existence thus information rich. The researcher prepared and administered a questionnaire to the relevant officers in the selected banks. The results of the study revealed that the issuing of personal loans is a challenging task for commercial banks. The pay slip which is considered a “security” is not reliable hence the banks use other measures to avoid the risk of making “bad loans". Employers also pose a challenge to the issuing of personal loans in that at times they take extended periods of time to implement the agreed loan repayment schedule. That not withstanding, it is visible that some borrowers are not trustworthy and will exploit any opportunity and fail to pay. It further established that a loan scoring model is a very useful tool in assisting the banker in allocating personal loans, it can however be concluded that despite its usefiilness the loan scoring model factors are not adequate but it assures risk reduction in lending. It was established that all the banks have regulations on personal loans. However, these regulations differ slightly in nature and effectiveness from bank to bank. It is expected that the results of the study may provide a basis for improving the management of unsecured personal loans. This will thus reduce the risks associated with unsecured personal loans. The identification of the challenges in giving unsecured personal loans may provide the regulatory bodies such as the G.O.K and C.B.K with a basis for policy formulation.