FACTORS AFFECTING THE SUPPLY OF HOUSING CREDIT IN KENYA: A STUDY OF FINANCIAL INSTITUTIONS

Everlyne Kongoro

Finance Department, Barclays Bank of Kenya

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Boniface Owino

Young Professional at Kenya Institute for Public Policy Research and Analysis

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CITATION: Kongoro, E., Owino, B., (2016). Factors Affecting the Supply of Housing Credit in Kenya: A Study of Financial Institutions. International Journal of Economics and Finance. Vol. 5. (3). Pp 1-14.

ABSTRACT

The main objective of this study was to establish the factors that affect the supply of housing credit (mortgage) in Kenya. It focused on the effects of firm-level factors and macroeconomic variables on the supply of housing credit. The firm level factors included profitability (return-on-assets), liquidity (capital-to-asset ratio), and deposit liability. The macroeconomic variables included lending interest rate, GDP growth, and inflation rate. The study used panel data for the period 2005 to 2014, which was analyzed using the Fixed Effects Model (FEM), Random Effects Model (REM), and the General Method of Moments (GMM). Liquidity had a positive and statistically significant relationship with housing credit supply in the FEM. Interest rate and deposits had a positive and statistically significant relationship with housing credit supply in FEM and REM. The coefficient of inflation rate was negative and statistically significant in the FEM and REM. The GMM model results showed that interest rate, inflation rate, bank deposit liabilities, and profitability had a positive and statistically significant relationship with housing credit supply. However, bank liquidity and GDP had no effect on housing credit supply.

Key words: housing credit supply, panel data, Kenya, GMM

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