Influence of Information Asymmetry on Commercial Banks Lending Performance in Rwanda

Abstract

This study about the influence of information asymmetry on the commercial banks’ lending in Rwanda includes four specific objectives which to analyze the influence of moral hazard asymmetric information on the commercial banks’ lending in Rwanda; analyze the influence of adverse selection asymmetric information to the commercial banks’ lending in Rwanda; determine the correlation between monitoring costs information and commercial banks’ lending in Rwanda and determine the link between asymmetric information and lending performance of commercial banks. This means that there a requirement of reducing information asymmetry in order to allow the performance lending in commercial banks of Rwanda. The study followed both correlation and comparative designs, and used both qualitative and quantitative. The population under study was comprised of board of directors, executives, top managers, middle managers and lower managers of 10 strong markets leadership in banking sector in Rwanda. The researcher used systematic random sampling method in each strata to select 278 from 931 people. The researcher used both primary and secondary source of data. Discriminating variables of ratios were analyzed using the Altman ‘Z” score. The data were analyzed using Statistical Packaging for Social Sciences (SPSS) and E-Xcel. In relation to the first research objective, this research found that the coefficient r between moral hazard asymmetric information and performance of commercial banks equal to 0.980. This leads to confirm that there is significant relationship between moral hazard asymmetric information and performance of bank. In relation to the second research objective, the study found that the coefficient r equal to 0.986. This leads to confirm that there is significant positive relationship between adverse selection asymmetric information and performance of bank. In relation to the third research objective, this research found that the coefficient r equal to 0.971. This leads to confirm that there is significant correlation between cost forecast asymmetric information and performance of bank. It is recommended for all registered commercial banks that decision to introduce to financial management information needs to be accompanied by strong commitment, sufficient manpower and financial resources, widespread internal support, and an agenda for effective communication.