Research by the clinical operations and programs division Proposal

By the clinical operations and programs division - Research Proposal Example The range of the number of surveys that have been carried out is between almost 3500 to 4500 employees. This report aims at analysing the research and to gain a better perspective on the theories of performance related pay and its affects. One of the common factors those interest employees, employers and the government equally is the most essential element of employment - Pay. Pay affects the employers because it is an expense borne by the business and employee performance matters a lot to the business. Also this factor affects the employer's ability to recruit and retain labour force of quality. Employees are affected by pay as it is the only source of income it also sets the standard of living and measures a value for the performance and value of service. Lastly the government is affected by this since it directly affects the macro economic stability like employment, social economic development, inflation etc. There are a number of different basis on which pay to an individual is decided. One of the oldest forms of pay is Performance Related Pay this is discussed in detail in the next few parts. Performance Related Pay refers to pay scheme used to measure individual performance in the company (Monks, 1997). It can a lso be used to measure group or organisational performance. The main objectives of introduction of performance related pay were to increase motivation in employees to perform better, increase the self esteem of employees, provide better understanding of the job description and functions, create better communication amongst the participants, encourage employees to be self motivated, and help improve the institutional manpower planning. (Mohrman, Resnick-West & Lawler, 1989). Also performance related pay helps to contribute to overall performance and productivity, along with motivating employee to work better by linking the pay to the achievements of target rather than the length of service. It also helps recognise the achievements of individuals and identifies the under performers, thus creating fairness in pay (Monks, 1997). It was noted that performance related pay has proved to be useful for managerial staff since it allows them to be able to set goals that need to be achieved. Th is makes them motivated to work towards the goals as performance related pay ensures them of a reward on achievement of the goals. The principle of relating pay and performance has been very useful and has acted as a good motivator (Kessler, 1994). Linking of performance and pay is mainly based on Improved Motivation. Famous authors and researchers like Lawler, Porter, and Vroom have pioneered psychological theories of expectancy. The theory should a simple relationship between the efforts put in by an employee, the rewards, the motivation of the employee and the possibility of gaining if the required

Analysis of Charlotte Brontes Jane Eyre :: Jane Eyre Essays

Analysis of Jane Eyre In Jane Eyre, Charlotte Bronte portrays one woman's desperate struggle to attain her identity in the mist of temptation, isolation, and impossible odds. Although she processes a strong soul she must fight not only the forces of passion and reason within herself ,but other's wills constantly imposed on her. In its first publication, it outraged many for its realistic portrayal of life during that time. Ultimately, the controversy of Bronte's novel lied in its realism, challenging the role of women, religion, and mortality in the Victorian society. In essence, Bronte's novel became a direct assault on Victorian morality. Controversy based in its realistic exposure of thoughts once considered improper for a lady of the 19th century. Emotions any respectable girl would repress. Women at this time were not to feel passion, nor were they considered sexual beings. To conceive the thought of women expressing rage and blatantly retaliating against authority was a defiance against the traditional role of women. Jane Eyre sent controversy through the literary community. For not only was it written by a woman but marked the first use of realistic characters. Jane's complexity lied in her being neither holy good nor evil. She was poor and plain in a time when society considered "an ugly woman a blot on the face of creation." It challenged Victorian class structure in a strictly hierachal society. A relationship between a lowly governess and a wealthy nobleman was simply unheard of. Bronte drew criticism for her attack on the aristocracy who she deemed as hypocritical "showy but ... not genuine." She assaulted individual's already established morals by presenting a plausible case for bigamy. Notions which should have evoked disgust and outrage from its reader. Yet its most scandaless aspect was its open treatment of love. Passionate love scenes which were for their day extremely explicit but by today's standards are less than tame. Bronte's choice of a strong independent heroine depicted feminist ideals that would later lead to the overhaul of Victorian culture. By making Jane an educated woman, Bronte gave her impowerment in a patriarchal society that denied women education. However, Jane became a woman who demanded a say in her own destiny. During her courtship, she refutes

A Report on Child Labor

The reaction of a typical citizen of a western state to child labor is generally one of disgust. They dream up images of a shoe factory in South Eastern Asia with hundreds of children stooped over sewing machines slaving their youth away. Instead of going to school or playing these children are locked in dangerous workshops, paid barely enough to survive. The truth of the matter is quite different. The average westerner does not realize that most often child laborers are working alongside their parents on small, family owned pieces of land. They are not tortured by a mean overseer, but rather surrounded by family and friends. My intent is not to paint a glowing picture or to diminish the fact that children would be better off in schools, but we must be realistic. Generally life for the child laborer is not as bad as many imagine and frequently their hard work is the difference from their family thriving and their family starving. Not only that, but when they work in the export-manufacturing sector of the economy their labor can fuel future growth of the economy, preventing their children or grandchildren from having to work in factories. This is not to say that we should do nothing to help child laborers, but rather that we should focus our aid in areas other than merely restricting the importation of items produced by them. We need to turn to more creative devices that will focus on improving the education and opportunity for education rather trying to focus on blindly banning child labor. In short, child labor is not the purely evil institution many feel it is and can even be useful in developing third world economies. At the same time we should still try to attempt to do more to develop those economies in order to not only end child labor but also to reduce all the forms of suffering which go on in the third world. Before examining child labor abroad we should look at it here in the United States. Throughout much of our country we employ thousands of, frequently illegal, immigrant laborers to work on farms producing our nation†s food supply. These laborers most often work in family units, with children working the fields side by side with their parents. When pesticides are used farm workers are often not warned or given insufficient warning to prevent their exposure to these dangerous chemicals. The result is that here in America, there exists a large number of children who work rather than going to school and while working are exposed to conditions similar or worse than that of third world factories. Little of this is done beyond the limits of the law. Agriculture has been granted many perks in labor law that would seem absurd in other sectors of the economy, despite the hazards involved in this type of work. All age limits imposed on other types of labor are reduced in agriculture. Outside agriculture 13 and 14 year old children cannot work more than three hours a day during a school week. These restrictions do not exist for farm workers; instead children from the age of 12 can work full days as long as they have their parents† consent. Even ten and eleven year olds can work as long as it is during short seasonal harvests, but they require special permission from the Department of Labor. Even these minimal restrictions can be avoided as many of these laborers do not speak English, do not know their rights, and are generally afraid of going to the authorities for fear of being deported from the country. Workers endure this system for an estimated average annual income of $7,500, a rate few Americans would be willing to accept. They are paid poorly, the rights they don†t know exist are abused, they are exposed to pesticides, and their children are not given the opportunity to get an education. This makes one wonder why they even come here. The answer is that the money they earn here is better than what they would make at home. Despite the abuse they suffer, it is worth it for the amount they get paid. Not only that, but here their labor is somewhat regulated by the government. Conversely, in Mexico regulation is often relaxed or nonexistent. It is better for children to work here where they at least are protected, even if minimally, than in Mexico where the same is not true. While working here they are able to send or take money home and support relatives. Evidence throughout the world has proven that when the opportunity for education is low or when the schools in an area are poor, the rate of children working is high. With this in mind we should work to improve education in Mexico. The family members supported by their farm-working relatives would be able to educate their children. This, in turn, would improve the economy in future years, making it no longer worthwhile to come to the United States to work. Better education in Mexico could make migrant farm workers in the United States a major source of growth for the Mexican economy. Internationally the situation is frequently similar. Eighty percent of child laborers abroad work in agriculture. Only eight percent of children work in manufacturing and of those only five percent manufacture items for export. This leaves a very small number of children worldwide that we can have much of an effect on through import restrictions. What we should do is try to limit the reasons that children work abroad, not just the demand for their labor. If a family will starve without the work of their children our efforts should be focused on increasing the wages their parents receive. The best way to do this is improving their level of education. It is too late to achieve this for the current generation, but we can use the labor of some children to improve the education of others to help future generations. Organizations like Rugmark, Kaleen, and Care & Fare are excellent examples of where international efforts should be focused. Essentially they take funds from the sale of each rug sold internationally and invest those funds in schools and hospitals for children in the country in which the rugs were made. Organizations like Rugmark focus on banning child labor from the carpet making industry but that is not necessary. As long as they collect money from the sale of carpets they are able to improve the economy. With those funds they can invest in education for the rest of society. Taking children from the carpet making industry will only move them into other, unregulated industries that could be more dangerous and detrimental to their development. Using organizations like Rugmark and Kaleen would be improving the economy on the backs of children, but perhaps this is a price we must pay for improvement. One other problem in the third world that deserves examination is that of children working when their parents do not. There is a high correlation in South Asia between child labor and adult unemployment. The reason for this is not definite, but one can only assume that it is due to either the parents not wanting to work or employers preferring children to adults. It is known that employers frequently rather have children in their shops as they complain less and are more pliable. If they are unwilling to employ adults in they factories, then this is a matter for the governments of those states. They must enact and strictly enforce laws ensuring that children are not working in their parents place. It is one thing for a child to work in order to feed their family, but another because the parents are too lazy or an employer to greedy to hire them. Education could still be a force to decrease child labor here. As child labor is high when educational opportunity is low, the mere act of building a school and hiring good teachers could do much to decrease child labor in the near future. Parents might decide that if their children could get a good education and live a better life, that they should work instead of their children. The main idea of what has been outlined above is that the best tool for reducing child labor is education. This is an investment, and as such the rewards may not be reaped for decades, but it is still worth the effort. We should use education, even if it must be funded or supported by the work of children, to improve the economies of countries dependent upon child labor. This is a pragmatic solution and one that is not beautiful, but if we were to merely ban importation of items produced by children we would in effect be cutting off our collective nose despite our face. Without educational opportunities in third world states children not working will only be street children, doing nothing with their time. We should also not be unwilling to encourage cultural change when it allows parents to stay home and do nothing while their children labor away in factories. Education is not a creative solution to the problem of child labor, but it is really the best tool we have to save future generations from suffering.

Impact Macroeconomic Factors On Nonperforming Finance Essay - Free Essay Example

Sample details Pages: 16 Words: 4738 Downloads: 9 Date added: 2017/06/26 Category Finance Essay Type Narrative essay Did you like this example? Risks are one of the factors that characterize the surrounding environment that every individual and institutions presides in. The level, type and magnitude of risks that are faced depend on the type of activities that elements of an environment engage in. Financial institutions and more specifically the banking industry are faced with an array of risks such as liquidity risk, market risk, operational risk credit risk among others. Don’t waste time! Our writers will create an original "Impact Macroeconomic Factors On Nonperforming Finance Essay" essay for you Create order Credit risk is identified as one of the major oldest risk factors that banks and other financial institutions have been facing from time to time. Credit risk refers to the probability that a borrower is unable repay money lend to them by a financial lending institution. Karumba and wafula, (2012) default risk is as a result of the probability that borrowers fail or unable to repay the loans hence affecting the performance of an institution. Under IMF guidelines 2004, If a borrower is unable to repay a debt or no interest is received from a loan asset for a period more than 3months or 90 days, an institution is required to classify this loans as nonperforming loans. Nonperforming loans are known to paralyze institutions performance and also lead to financial crises for example the loan crisis in US and also the banking crisis(Inoguchi, 2012) and in kenya during 1980s and 90s. Non-performing loans are costs or expenses to banks and affect negatively the performance and operation of a b ank. Researches done have identified various factors such as macroeconomic factors, financial factors and bank specific factors to be the cause of emergence and increase or decrease of nonperforming loans in financial institutions(Louzis, Vouldis and Metaxas, 2010; Ngetich and Wanjau 2009). Microeconomic factors deal with the entire economy both at the regional and national level and affect the entire population. Such factors include inflation, interest rates, monetary policy rates, savings, investments, unemployment, GDP, CPI, exchange rate, money supply among others and they are constantly monitored by government businesses and consumers. Studies have shown that most of these macroeconomic factors tend to have a significant varying effect on level of non-performing loans in banks. 1.2 Back ground 1.2.1 Kenyan banking system Karumba and wafula, (2012) Kenyan banks undergo the same risks and problems emanating from such risks faced by other institutions all in different locations and use security lending as a risk measurement tool against loan advances. Nonperforming loans are as a result of loan defaults, that is, they are of no interest to an institution because no cash flow is generated from them. Ngetich and Wanjau, (2011) stated that the aspect of non-performing loans has been receiving a lot attention because of the impact brought about by a large number of NPLs is failure or collapse of banks. Farhan, sattar, chaudhry and khalil, 2012) stated that nonperforming loans have played part in occurrence of financial crisis experienced in most parts of the world mostly in sub-Saharan Africa, America and East Asia. Hardy (December 1998)Turbulence or occurrence of some irregular activities anywhere in an economy are likely to have an impact on the banking system. Waweru and Kalani, (2009) did a paper on the commercial bank crisis in Kenya which started in1986 and continued all through 1989, 1993, 1994 and 1998 where a total number of 37 banks went under or failed. (Ngugi, 2001) observes that there were two financial crises in Kenya one in the mid 1980s and the other in the early and late 1990s, where 6 commercial banks and 12 NBFIs faced insolvency problems between 1993 and 1996 and 5 banks were placed under statutory mandate in 1998. She observes that among the factors that led to the crisis was non-performing loans . Failure of the banking industry in Kenya as observed by Waweru and Kalani,(2009) was caused by a lot of factors. Kenyan banks during the immediate post-colonial period constituted both foreign banks, local commercial banks and some privately owned NBFIs. The regulatory framework governing local financial institutions that period was not well defined. (Brownbridge, 1998) in his study on causes of financial distress in local banks in Africa and implications for prudential policy found that the insider lending was one of the largest contributor to bad loans, for instance, in Kenya failure of banks such as Continental bank, Trade bank, and Pan African bank was due to insider lending that was made often to politicians. Another factor identified was banks extended loans to high risk borrowers who had been declined by foreign banks hence local banks were willing to lend at higher costs. Brownbrigde observed macroeconomic instability as the propelling factor behind problem loans of banks, du ring 1990 in kenya the inflation rate as observed was 46% which affected banks by increasing volatility in business profits and also made loan appraisal difficult for banks. . (Waweru and kalani, 2009) states that the activities of commercial bank activities expose them to credit risk, and techniques such as provision for debts and credit screening and monitoring provide a temporary cover to level of NPLs. But he further states that increase in the level of NPLs to a certain level cannot be covered by the allocated provisions. In Kenya, after the banking crisis, measures were taken to protect against such events again. (Ngugi, 2001) in response to Kenyas financial crisis the banking act was revised and approved in 1989 to improve and enhance the mandate of CKB in terms of regulation and supervision function in regard to activities of commercial banks and NBFIs. Hardy (December 1998) shows the history of banking crisis starting with the great depression of the US, another period characterized by failure of banking system is during the 1980s and 90s where many African countries had to restructure their banking system after a crisis caused by loans to parastatals. (Ngetich and Wanjau, 2011) state that the major contributing factor of financial and banking crises observed mostly in East Asia and Sub-Saharan Africa countries is high levels of nonperforming assets. Non-performing loans are costs or expenses to banks and impacts negatively to the performance of a bank (Chang, 1999). The risk of non-performing loans are as a result of harsh external economic conditions such depressions (Sinkey and Greenawalt, 1991). 1.3 STATEMENT OF THE PROBLEM Karumba and Wafula, (2012) in their article on alternative for Kenyan banking industry identified that credit risk is one of the oldest and most challenging risk faced by banks, which results due to the probability that borrowers may default terms of their debt and hence putting an institutions capital into risky positions. Increase in defaults lead to piling of non-performing loans in an institutions balance sheet. Musyoki and Kadubo, (2011) in their paper on credit risk management on financial performance of banks concluded that default rate is the most important factor as it influences 54% in total credit risk influence on bank performance. Geoffrey Irungu, (23 November 2011) on property Kenya stated that the total outstanding loan portfolio for commercial banks in Kenya was 1.2 trillion and a statistic by index mundi show the total non-performing loans was 5.4% in 2011. Nonperforming loans impacts on a banks performance by reducing its revenue as they become expenses. These study tends to investigate the root cause and explanatory power of factors that influence or cause variation in the level of non-performing loans in Kenyan banking industry by looking macroeconomic variables. Studies have shown there seems to be a significant relationship between macroeconomic variables and level of nonperforming loans. (Ngetich and Wanjau, 2011) identified that interest rate spread have an impact on non-performing loans , Rottke and Gentgen, (2008) in there paper workout management of non-performing loans noted that the one of the reasons behind non-performing loans in Germany was the recessionary environment. Statisitic show that the trend of nonperforming loans(% of gross loans) in Kenya since 2003 to 2011 has been decreasing. In 2003, 2004, 2005, 2005, 2006, 2007, 2008, 2009, 2010 and 2011 the percentage was 34.9%, 29.3%, 25.6%, 10.6%, 9%, 7.9%, 6.3% and 5.4% respectively (sourced from world bank data base). The y axis represents percentage and X axis is years. The study aims to investigate the relationship of macroeconomic factors and nonperforming loans during this specific period of 2002 to 2011. It is a period in Kenya that is characterized by a lot of economic changes in terms of inflation rate, banks lending rates and CBR, exchange rate fluctuations, unemployment rate, price of commodities etc. I seek to investigate explanatory power of various macroeconomic variables towards the trend of non-performing loans within the stated period. 1.4 PURPOSE OF THE STUDY Microeconomic factors deal with the entire economy both at the regional and national and affect the entire population. These research paper aims at investigating the impact of various macroeconomic factors on level of nonperforming loans within Kenyas banking period within the period of 2002 to 2011. These period is characterized by a decreasing trend of nonperforming loans and hence the paper seeks to establish the level of significance of various macroeconomic variables, that also experienced major variability during that period, on defaulted loans. 1.5 General objective Impact macroeconomic factors on nonperforming loans in the Kenyan banking industry during the period of (2023- 2011) 1.5.1Specific objective To assess the impact of gross domestic product (GDP) on nonperforming loans in Kenya To assess the impact of monetary policy lending rate (CBR) on nonperforming loans in Kenya To assess the impact of inflation rate on nonperforming loans in Kenya To assess the impact of consumer price index on nonperforming loans in Kenya 1.6 RESEARCH QUESTIONS What is the impact of gross domestic product (GDP) on nonperforming loans in Kenya? What is the impact of monetary policy lending rate (CBR) on nonperforming loans in Kenya? What is the impact of inflation rate on nonperforming loans in Kenya ? What the impact of consumer price index on nonperforming loans in Kenya? SIGNIFICANCE OF THE STUDY JUSTIFICATION OF THE STUDY SCOPE OF THE STUDY The study focuses on the impact of macroeconomic variables on nonperforming loans within the banking industry in Kenya. The time scope under consideration on the trend of nonperforming loans of banks will be the period between 2002 and 2011, while the geographical scope will cover the whole banking industry in Kenya. 1.10 LIMITATIONS OF THE STUDY 1.11 DELIMITATIONS OF THE STUDY CHAPTER TWO: LITRATURE REVIEW 2.1INTRODUCTION These study tends to look at literature done on impact of macroeconomic factors on nonperforming loans by several researchers from different sources; books, articles, websites, journals and others. The review mostly will look at the works and researches done in different countries and observe the level of significance of macroeconomic variables in influencing the level of nonperforming loans. 2.3 Literature review divided into four parts, definitions, causes, npl in other countries, finally macroeconomic factors. 2.3.1 Review of past studies According to IMF guide on financial soundness and indicators (2004) paragraph 4.45 defines a loan as a financial asset created when a borrower is extended credit by a financial institution on an agreement that repayment will be done based on the specifics of the agreement and that a security may be provided(secured) or not(unsecured). Loans can be classified under secured and unsecured loans, where secured loans are loan advances extended on basis of a collateral while unsecured loans no collateral is provided. (Karumba and Wafula, 2009) stated that banks Kenyan banks depend on collateral lending as risk measure against issued loans. (Guarav Akrani, 7/9/2011) define nonperforming loans as loans whose principal payment and interest are not met by the borrower/customer, and observes the period for determining whether a loan has become non-performing under international guides to be 45 to 90 days but this may differ in different countries like in India it is 180days. According to the Malaysian Law Journal, non-performing loan (NPL), is defined as any loan to a person by a licensed institution, which has been in arrears for a period of times as may be determined by the licensed institution. According to IMF guides 2004 this definitions may vary in different financial setting in other states but the basic underlying meaning is more or less the same and (Hippolyte and Fofack, 2005) stated that how nonperforming loans are identified vary among different states mostly in Africa due to factors such as regulatory frameworks, policies governing institutions and different structural frameworks. (Guarav Akrani, 7/9/2011) stated the different types of nonperforming assets to be; standard assets, sub-standard assets, doubtful assets and loss assets. Standard asset loans or assets that are responsive to the terms of agreement in terms of repayment of the interest and principal they are said to be performing. Sub-standard loans are loans whose period for determining whether they are nonperforming is 12months but another definition of sub-standard loan by (Hippolyte and Fofack, 2005) is a loan whose terms of agreement have not been met for a period of at least 6months hence as applied in sub-Saharan Arica. Doubtful assets are assets whose repayment has not been made for a period of more than a year or 12months and loss assets are assets that cannot be recovered. Nonperforming loans are as a result of both external and internal factors of a financial institution environment. (Guarav Akrani 7/9/2011) broadly identifies this factors as speculation, default, fraudulent practices, diversion of funds, internal and external factors. These study is more inclined towards the external factors and more importantly the macroeconomic factors. Although studies tend to show varying factors as causation for nonperforming loans most studies have identified macroeconomic factors and bank specific variables as major reasons. (Louzis Vouldis and Metaxas, 2010) observed that presence of significant influence of macroeconomic factors and bank specific variables on nonperforming loans in Greece, (Vogiazas and Nikolaidou, 2011) investigated the determinants of nonperforming loans in the Romanian banking system and found that there was an influence macroeconomic factors on the NPLs. A number of countries have experienced or are facing issues regarding nonperforming loans, Inoguchi, (2012) a study done in Malaysia on non-performing loans stated that in southeast Asia where companies rely mostly on bank loans, a sound banking system is necessary. He also stated that non-performing loans pose a great danger to a banking system as evidenced in most countries an example of US subprime mortgage crisis. Louzis, Vouldis and Metaxas, (2010) in their study in Greece stated that coming up with factors that determine default risk is an important issue to the regulatory authorities concerned with the financial stability of banking industry and despite the effort by banks to come up with techniques and measures to curb the level of default risks of loans the by proper screening and monitoring of borrowers, macroeconomic factors seem to have a major effect on the level of non-performing loans among other factors such as bank specific characteristics. Nonperforming loans have played major roles in bringing down economies of not only the developing states but also the developed states in the world. (Hippolyte and Fofack, 2005) stated that if increase in nonperforming loans in a banks statements without constant monitoring and taking measures to protect against them, the resultant effect would be emergence of a financial crisis if NPLs increase beyond a banks total capital. (Farhan, sattar, chaudhry and khalil, 2012) in their study on nonperforming loans in Pakistan concluded that non-performing loans have proved to be a major contributing factor in economic crises and financial crises all over the world for instance the Euro zone crisis, the subprime mortgage crisis in the US, East Asian crisis and also sub-Saharan Africia. . (Hippolyte and Fofack, 2005) stated that most of the financial crises experienced in most parts of the world are as a result of increased level of nonperforming assets. European nonperforming loan report 2011 by Earnest and Young observed that the rate of growth of economies after the financial crisis has been very slow in developed countries(2.5%) as opposed to developing countries at a rate of 6%. The report stated that southern Europe experienced worse economic times with increased interest rates, a fall in prices in the mortgage industry, a fall in the construction industry and high unemployment rates led to an increase of NPLs in banks balance sheets. For instance, in Germany the report states after the crisis the level of NPLs rose from 200billion Euros to 250b Euros, while in Spain the economic downturn led to an increase in NPLs from 93.3billion Euros in 2009 to 107.2billion in 2010 a 14% increase. (Hippolyte and Fofack, 2005) in his study on nonperforming loans in sub-Saharan Africa stated that a high level of banking and financial crisis during 1980s and 1990s was experienced by a large number of developing countries as a result of poor performance of banking and financial institutions. There was a high level of credit risk due to an increased number defaults by loan/debt holders which was 30% of total loans during 1990s and reached a high of 32% in 1993 the highest experienced in developing countries. Impaired loans lead to increased financial costs and a great deal of other implications mostly for developing countries mostly African states that are usually characterized by debts from international organizations and foreign countries. They concluded significant influence on nonperforming loans to be caused by macroeconomic factors and various bank specific variables in most of the sub-Saharan African states. (Rottke and Gentgen, 2006) in there paper workout management of nonperforming loans pointed out that In the united states of America the crises(1989-1994) from savings and loans that led to high level of nonperforming loans in the property industry was driven mostly by volatile exchange rates, pressure of oil prices, and a competitive environment that was caused by changes in the regulatory frameworks that led to cross-state banking. There was observed increased risk taking activities and lending rose from 18% to 27% in real estate loans between 1980 and 1990. The crisis came as a result of default in the loans due to harsh economic conditions. In some countries the cause of nonperforming loans is related to political instability or system of ruling. China, due to its socialist system, is a civil law country that operates more on standard practice than on law. China does not have a robust legal infrastructure or sophisticated legal banking frameworks, though China has passed special banking legislation to accommodate and facilitate the growth of a modern banking industry. The reason behind non performing loans in china therefore is due to political matters, (Rottke and Gentgen, 2006) During the centrally planned economy from 1949 onwards loans were granted by state owned banks to state owned companies without proper credit due diligence at predetermined standardized conditions by the government. Especially, in the overheated economy of the 1990s domestic credits extended enormously and grew by 30% per year between 1992 and 1995. Theoretical review Basel accords credit risk arises whenever a lender is exposed to loss from a borrower, counterparty, or an obligor who fails to honor their debt obligation as they have agreed or contracted hence leading to nonperforming assets in banks balance sheets. The 1998 Basel 1 accord placed restrictions on the level of risk a bank could get into in regards to the level of capital it had, that is, the level of lending beyond a total capital was restricted. This was to provide security for depositors funds from loss and to shield the whole financial system from crises in case there was emergence of an economic contraction/downturn and lead to collapse. Under Basel 2 new treatment of credit risk is given specifying approaches available to banks to calculate level of credit risk, that is, standard approach, foundation internal rating based approach and advanced IRB approach. For banks to decide or specify whether a loan is performing or nonperforming standard approach is the method to use under Basel 2 accord because it measures the probability of default which looks at the likelihood that a borrower will default over a given period, it also measures the proportion of exposure that will be lost in case of default (loss given default), and finally it measures the amount of the facility likely to be drawn if default occurs. According to IMF guide on financial soundness and indicators (2004) paragraph 4.45 defines a loan as a financial asset created when a borrower is extended credit by a financial institution on an agreement that repayment will be done based on the specifics of the agreement and that a security may be provided(secured) or not(unsecured). The causation factors of nonperforming assets that face borrowers according to (Ranjan and Dhal, 2003) may be either internal or external. The internal factors include factors that are a hazard to the improvement of business activities either by misappropriation of finances needed for the purposes either by diversification or taking up new projects, business failure inefficient management product obsolescence, inappropriate technology etc. while external factors include factors that affect the business from outside this may include economic recessions, non-payment in other countries, price escalations, natural calamities etc. other theories trying to link real economy to NPLs include the theory that long lasting recessions within an economy tend to lead to an increased level of NPL,s overt time and Irvin Fishers theory of debt-deflation (1993) that states that deflation where one of the effect is usually a fall in prices causes NPL,s. Credit portfolio management theories and models For a bank to diversify the risk associated with lending of funds to borrowers, it has to have a portfolio of loans that includes different types of loans with different levels of risk. There are four credit portfolio models that have been introduced to measure credit portfolio risk; KMV portfolio manager introduced in 1993, J.P Morgan credit metric 1997, Credit Suisse First Boston introduced credit Risk+ 1997, and McKinsey portfolio-view in 1997. McKinsey portfolio-view in 1997 It is the first macro-factor model introduced by McKinsey that involves a view about the situation of the economy. It is a conditional approach that includes risk of the economy which has a large predictable impact on credit migration and on default probabilities. The historical default rate for industry/country combinations are described as function of macroeconomic variables specified by the user. the model captures the fundamental aspect that economy-wide defaults rise and fall with macroeconomic conditions( Eric Kuo, 2008, credit portfolio management). (probability of Default) = f(GDP growth, Unemployment rate, inflation, interest rates,ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦.) Macroeconomic factors deal with the entire economy both at the regional and national and affect the entire population. Such factors include inflation, interest rates, monetary policy rates, savings, investments, unemployment rate, GDP, CPI among others and they are constantly monitored by government businesses and consumers. Studies have shown that most of these macroeconomic factors tend to have a significant varying effect on level of non-performing loans in banks. Mckinsey poertfolio view model has been proved to work by empirically for instance, (Ngetich and Wanjau, 2011) in their study concluded that interest rate spread, as one of the macroeconomic factors, has a significant effect on non performing loans in banks because it tends to increase the cost of lending to borrowers despite the type of interest rate charged, be it fixed or floating rate, the impact on banks non performing loans is more or less the same. (Louzis Vouldis and Metaxas,(2010) noted that studies relating macroeconomic environment and loan qualities to bank stability have been investigated and formulates an hypothesis stating that increased economic activities lead to a decline in the level of non-performing loans because consumers and firms have enough funds to repay loans, but as the economic activities continue increasing creditors with poor ratings are also given loans such that if a crisis hits the number of NPLs are high. They concluded that the studied macroeconomic variables, that is, gross domestic product (GDP), the level of unemployment rate, and the lending rate had the highest significant effect on NPLs hence proving Mckinseys model of portfolio view. 2.2 CONCEPTUAL FRAMEWORK Independent variables dependent variables Consumer price index Central bank rate (CBR) Nonperforming loans Money supply M3 Economic growth (GDP) The conceptual framework represents nonperforming loans as a function of consumer price index, CBR , money supply and gross domestic product. The researcher will assume a linear relationship between the independent variables and the dependent variable. 2.2.1 DEPENDENT VARIABLE The dependent variable in an equation is the variable that depends on changes of independent variables. Nonperforming loan as the dependent variable has proved to have a major effect on the performance of financial institutions and emergence of nonperforming loans are linked to other factors. 2.2.2 INDEPENDENT VARIABLE Factors that affect changes in dependent variables. 2.2.2.1 Consumer price index (CPI) In Kenya, the Consumer Price Index or CPI measures changes in the prices paid by consumers for a basket of goods and services. 2.2.2.2 Central bank rate (CBR) This is a monetary policy tool used by central banks, it is the lending rate to commercial banks and its used to control interest rates charged by commercial banks in the market. These study tends to investigate the relationship between changes in CBR on nonperforming loans. 2.2.2.3 Money supply M3 Money Supply M3 in Kenya increased to 1670.86 KES Billion in September of 2012 from 1638.46 KES Billion in August of 2012. Money Supply M3 in Kenya is reported by the Central Bank of Kenya. Historically, from 2000 until 2012, Kenya Money Supply M3 averaged 798.18 KES Billion reaching an all time high of 1670.86 KES Billion in September of 2012 and a record low of 345.90 KES Billion in May of 2000. Kenya Money Supply M3 includes M2 plus long-term time deposits in banks. 2.2.2.4 Economic growth (GDP) Gross domestic product is the measure of value of all goods and services produced within the borders of a given country, it is used as a measure of economic heath or status of a given state. the study seeks to investigate the explanatory power of changes in GDP on the trend of nonperforming loans. Data from indexmundi.com gives the trend of GDP real growth rate on an annual basis and adjusted for inflation; Country 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Kenya 1.5 0.4 1 0.8 1.5 2.2 5.8 5.7 7 1.7 2.6 5 5 Source; indexmundi.com 3.0RESEARCH METHODOLOGY 3.1 Research design The study aims to conduct longitudinal research, because panel data methods will be used, in the quest to answer the question on the effect of macro-economic factors on nonperforming loans in the Kenyas banking industry that has been of a concern for a period of 10years (2002-2011). Explanatory research was chosen for robust study and deep search into the macro-economic factors to achieve the goal of the study by determining the relationship and explanatory power of macroeconomic variables on nonperforming loans. 3.2 Target Population The target population will consist of all the Kenyan banks within Kenyas banking industry from where data on nonperforming loans will be derived from. The researcher views this as an appropriate population because it will give a general clear picture of the effect of economic changes on banks loan performance. Currently in Kenya, statistics by the CBK show that the population of financial institutions comprises of 43 licensed commercial banks and 1 mortgage finance company. 27 of the commercial banks are locally owned and 13 are foreign owned. 3.3 Sampling Design The study uses aggregated percentage of nonperforming loans for all commercial banks for a period of 10 years from 2002 to 2011 with an aim of achieving comprehensive. 3.4 Data collection The study will use secondary data sources to acquire data for the purposes of conducting the research. The data will be sourced from various sources that is the central bank of Kenyas annual reports, surveys and publications on commercial banks performance , another source will be the Kenya National Bureau of Statistics (KNBS) statistical data on macroeconomic variables will be obtained and the final source will be data bank from world bank surveys. These institutions are the major source of information concerning most aspects of Kenya economically and socially. Data on nonperforming loans is available at the world bank data source and the central bank of Kenya reports, while data on the selected macroeconomic variables will be obtained from KNBS. 3.5 Data Analysis Econometrics models will be used in the study to analyze the collected data so as to get accurate results. Data will be analyzed using multiple linear regression method, univariate analysis and descriptive statistics, charts and graphs. (Eviews 3) will be used to aid in the analysis of the study. 3.5.1 univariate and descriptive analysis To analyze each variable and the general trends of data from 2002 to 2011 for the commercial banks in Kenya the researcher will use univariate analysis to check for normality in variables and bivariate analysis to give a graphical representation. 3.5.2 Regression analysis Model A multiple linear regression model will be used to determine the importance of each independent variable in affecting NPLs. A model to show the regression analysis of nonperforming loans as the dependent variable and GDP, Money supply, consumer price index, and CBR as the independent variables is given below; (probability of Default) = f(GDP growth, Money supply, consumer price index, CBR) NPLt =f (ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±0+ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±1M3t+ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±2CPIt+ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±3CBRt+ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±4GDPt+ÃÆ'Ã… ½Ãƒâ€šÃ‚ µt) Where NPLt = Nonperforming loans of banks at time t M3t = Money supply t CPIt = Consumer price index t CBRt = Central bank rate t GDPt = Gross Domestic Product at time t ÃÆ'Ã… ½Ãƒâ€šÃ‚ µt = Error term ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±0,ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±1,ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦,ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±5 = parameters ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±0 = Constant The error ÃÆ'Ã… ½Ãƒâ€šÃ‚ µt term accounts for omitted variables and errors in measurement