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Does Bank Lending Channel Exist in Kenya: Bank Level Panel Data Analysis

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  • Moses Muse Sichei
  • Githinji Njenga

    (Research Department Central Bank of Kenya)

Abstract

The study empirically investigates bank lending channel (BLC) of monetary policy transmission in Kenya using annual bank-level panel data during the period 2001-2008. A modified IS/LM model with bank lending is used in the spirit of Bernanke and Blinder (1988), and banks are segregated on the basis of asset size, capital adequacy, liquidity and foreign ownership criteria. The main finding is that BLC exists in Kenya based on bank liquidity and capitalization. In particular, banks with less liquid balance sheets and low total capital to risk-weighted asset ratios are hit most by monetary policy. Since low liquidity and low capital banks are generally large banks, which contribute 82% of total bank credit, BLC is significant in Kenya. The existence of BLC means that monetary policy has asymmetric effects on banks and borrowers in Kenya. Further, bank credit can be used as a nominal anchor for monetary policy and a leading indicator for economic activity in Kenya

Suggested Citation

  • Moses Muse Sichei & Githinji Njenga, 2012. "Does Bank Lending Channel Exist in Kenya: Bank Level Panel Data Analysis," Working Papers 249, African Economic Research Consortium, Research Department.
    • Handle: RePEc:aer:wpaper:249
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    File URL: ftp://41.215.20.26/RePEc/aer/wpaper/RP249.pdf
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    Cited by:

    1. repec:idn:jimfjn:v:4:y:2018:i:2e:p:1-14 is not listed on IDEAS
    2. Kariuki, Caroline & Tiriongo, Samuel, 2021. "Market expectations versus outcomes: Sectoral credit market analysis in Kenya," KBA Centre for Research on Financial Markets and Policy Working Paper Series 48, Kenya Bankers Association (KBA).
    3. Nguyen, Vu Hong Thai & Boateng, Agyenim, 2013. "The impact of excess reserves beyond precautionary levels on Bank Lending Channels in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 358-377.
    4. Were, Maureen & Nyamongo, Esman & Kamau, Anne W. & Sichei, Moses M. & Wambua, Joseph, 2014. "Assessing the effectiveness of monetary policy in Kenya: Evidence from a macroeconomic model," Economic Modelling, Elsevier, vol. 37(C), pages 193-201.
    5. Chileshe, Patrick Mumbi, 2017. "Banking structure and the bank lending channel of monetary policy transmission: evidence from panel data methods," MPRA Paper 82757, University Library of Munich, Germany.
    6. Zuriyati Ahmad & Abdul Ghafar Ismail, 2018. "Alternative Of Monetary Policy Indicator: Panel Data Analysis From Islamic Banks In Malaysia," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 4(2), pages 279-292, November.
    7. Ephraim Ugwu & Johnson Okoh & Stella Mbah, 2017. "The Link Between Bank Credit And Private Sector Investment In Nigeria From 1980-2014," Oradea Journal of Business and Economics, University of Oradea, Faculty of Economics, vol. 2(1), pages 43-54, March.
    8. Hou, Xiaohui & Wang, Qing, 2013. "Implications of banking marketization for the lending channel of monetary policy transmission: Evidence from China," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 442-451.

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