Abstract:
This study analyzes the effects of non-performing loans (Np-Loans) on technical efficiency in the Kenyan commercial banks. The study points to establish the technical efficiency scores of banking performance in Kenya and also determine the effect of NP-loans on bank efficiency in Kenya. The technical efficiency scores were evaluated using the Data envelopment analysis approach while the Tobit regression model is used to determine the effect of NP-Loans on bank efficiency. The results show that commercial banks in Kenya operate with some inefficiency. Tier 1 banks operate at 95.4 percent, tier 2 banks at 97.9 and tier 3 banks 97.9 Percent. The Tobit regression results indicate that non-performing loans have negative and statistically significant effect on Kenyan commercial banks.
