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Bank-Specific Determinants of Commercial Banks Financial Stability in Kenya

Author

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  • Samuel Mwangi Kiemo
  • Tobias O. Olweny
  • Willy M. Muturi
  • Lucy W. Mwangi

Abstract

This study sought to identify the bank-specific determinants of commercial banks financial stability in Kenya. This was achieved by examining the effect of; regulatory capital, credit exposure, bank funding, bank size and corporate governance variables on banks financial stability. Altman’s Z-Score plus Model for non-US and non-manufacturing firms was adopted as a measure of banks financial stability. Secondary panel data contained in the annual reports and financial statements of study population which consisted of all commercial in Kenya licensed by Central Bank of Kenya for period year 2000 to year 2015 was collected and used for analysis. A census of all 39 commercial banks and quantitative research design was adopted. The study adopted panel regression to capture both cross sectional and longitudinal data characteristics. Specified panel regression model for fixed effects supported by the Hausman test results was estimated. Panel Generalized Method of Moments (GMM) regression results found bank size, regulatory capital; bank funding and corporate governance had a positive and statistically significant effect on financial stability for commercial banks in Kenya. However, credit exposure was found to have negative and statistically significant effect on financial stability for commercial banks in Kenya. Based on these findings the study concluded increase in bank size, regulatory capital, bank funding and corporate governance boasted financial stability for commercial banks in Kenya. On other hand increase in credit exposure lowered the financial stability for commercial banks. Based on these findings, the study recommends commercial banks to adopt appropriate strategies that promote increase in bank size, regulatory capital, bank funding and corporate governance.  JEL classification numbers: G2 G01 G33

Suggested Citation

  • Samuel Mwangi Kiemo & Tobias O. Olweny & Willy M. Muturi & Lucy W. Mwangi, 2019. "Bank-Specific Determinants of Commercial Banks Financial Stability in Kenya," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 9(1), pages 1-5.
    • Handle: RePEc:spt:apfiba:v:9:y:2019:i:1:f:9_1_5
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    References listed on IDEAS

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    Cited by:

    1. Samuel Kiemo (PhD) & Cyrus Mugo, 2021. "Banking Sector Consolidation and Stability in Kenya," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 11(3), pages 1-6.
    2. Samuel Kiemo & Anne Kamau, 2021. "Banking sector competition and intermediation efficiency in Kenya," African Development Review, African Development Bank, vol. 33(4), pages 648-661, December.
    3. Saif Ullah & Atta Ullah & Mubasher Zaman, 2024. "Nexus of governance, macroeconomic conditions, and financial stability of banks: a comparison of developed and emerging countries," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-38, December.

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    More about this item

    Keywords

    Financial Stability; Commercial Banks; Bank Size; Regulatory Capital; Credit Exposure; Bank Funding; Corporate Governance.;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G01 - Financial Economics - - General - - - Financial Crises
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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