PHD-Department of Accounting and Finance

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Browsing PHD-Department of Accounting and Finance by Subject "Commercial Banks"

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    Basel Accord Requirements and Financial Performance of Commercial Banks in Kenya
    (Kenyatta University, 2022) Wanjiru, Mathina Ruth; Ambrose Jagongo; Lucy Wamugo
    An efficient, stable and well-functioning banking system contributes to the economic growth of a country. However, the decline in financial performance of commercial banks in Kenya based on average return on assets is of high concern among various stakeholders, that is, the average return on assets was reducing over the period of study, 4.7% in 2013, 3.4% in 2014, 2.9% in 2015, 3.3% in 2016, 2.7% in 2017, 2.7% in 2018, 2.6% in 2019 and 1.7% in 2020 despite the introduction of banking regulations in regard to capital, supervision and market discipline by the central bank of Kenya. Basel II is the second Basel accord requirements and is based on three main pillars including capital, supervisory review and market discipline. It is therefore vital for banking institutions to understand the linkage between Basel accord requirements and financial performance in order to enhance financial performance in the long run. The general objective of the study was to investigate the effect of Basel accord requirements on financial performance of commercial banks in Kenya. Specifically, the study aimed to determine the effect of capital, supervisory review and market discipline on financial performance of commercial banks in Kenya. The study further sought to establish the moderating effect of market share on the relationship between Basel accord requirements and financial performance of commercial banks in Kenya. The study was founded on asymmetry information theory, buffer theory of capital, relative market power hypothesis and agency theory. Positivism research philosophy and casual research design were employed. The target population comprised of forty-three commercial banks from which a sample of thirty-eight commercial banks was obtained. Commercial banks which were actively operating and not under statutory management during the period of study were selected. Thus, the study used purposive sampling technique. Data for the period between 2013-2020 was extracted from the bank supervision annual reports and individual bank’s published annual reports using document review guide (Appendix I). Data analysis involved descriptive statistics (maximum and minimum values, standard deviation and mean) and inferential analysis (panel regression and correlation analysis). The study conducted panel unit root test, multicollinearity test, normality test, heteroscedasticity test and autocorrelation test to avoid spurious results. The 5% significance level was used to test the research hypotheses. Correlation results show that supervisory review, market discipline and market share were positively and significantly correlated with financial performance of commercial banks in Kenya while capital had a positive insignificant correlation with financial performance. The panel regression findings showed that market discipline had a positive insignificant effect on financial performance of commercial banks in Kenya as measured by return on assets while capital and supervisory review had a positive significant effect on financial performance of commercial banks in Kenya. Market share had a negative significant moderating effect on the relationship between capital and return on assets of commercial banks in Kenya. Market share had a negative insignificant moderating effect on the relationship between supervisory review, market discipline and financial performance of commercial banks in Kenya. The conclusion of the study was that Basel accord requirements including capital, supervisory review and market discipline jointly explains the variation in financial performance of commercial banks in Kenya. Further, increase in capital and supervisory review enhances financial performance. The study thus recommends that the central bank of Kenya and other regulatory bodies like capital market authority should design banking policies for implementing Basel accord requirements and enhancing financial performance of commercial banks in Kenya.
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    Firm Characteristics and Financial Stability of Commercial Banks in Kenya
    (Kenyatta University, 2020-09) Wafula, Nathan Wamalwa
    A stable banking sector is significant in ensuring economic growth as well as sound, efficient and stable financial system. However, the banking sector has been considered fragile and this is evident from the increasing trend of non-performing loans, fluctuating deposit trend of some commercial banks and increasing trend of foreign liabilities held by commercial banks in Kenya which is associated with financial stability. Furthermore the collapsing of commercial banks and some being put under receivership is of great concern to the financial stability of the commercial banks in Kenya. The Central Bank of Kenya (CBK) uses the CAMEL model whose firm characteristics namely, capital adequacy, asset quality, management efficiency, earnings/profitability and liquidity are used as measures of ascertaining the financial stability of commercial banks in Kenya. Despite the CBK‟s adoption of the CAMEL model, the banking sector in Kenya has been considered fragile. It is the need to investigate the link between firm characteristics and financial stability of commercial banks in Kenya, which triggered the desire to undertake this study. The general objective of the study was to establish the effect of firm characteristics on financial stability in commercial banks, Kenya. The specific objectives of the study were to determine the effect of operational efficiency, capital adequacy, bank liquidity, profitability and asset quality on financial stability of commercial banks in Kenya. Exchange rate was utilized to ascertain the moderating effect between firm characteristics and financial stability of commercial banks in Kenya. The study has been underpinned on Agency Theory and supported by Efficiency Structure Theory, Buffer Capital Theory, Liquidity Shiftability Theory and Information Asymmetry Theory. Causal research design was employed. The study was carried out in 17 fragile commercial banks in Kenya, between years 2011 to 2018.The study carried out normality test, panel unit root test, autocorrelation, heteroscedasticity test and multicollinearity test. Generalized Method of Moments (GMM) model guided by dynamic panel regression results revealed that operating efficiency had a statistically significant positive effect on financial stability of commercial banks in Kenya. Capital adequacy had a statistically significant negative effect on financial stability of commercial banks in Kenya. The study further revealed that bank liquidity had a statistically insignificant negative effect on financial stability of commercial bank in Kenya. In addition, profitability had a statistically significant negative effect on financial stability. Asset quality had a statistically significant positive effect on financial stability. Exchange rate had a statistically significant negative effect on the relationship between firm characteristics and financial stability of commercial banks in Kenya. The study concludes that firm characteristics namely operating efficiency, capital adequacy, profitability and asset quality are strongly linked to financial stability of commercial banks in Kenya. The study recommends for mergers and acquisition among the fragile commercial banks as per the fragility index, adoption of internal economics of scale, limits on insider loans to be established, credit to borrowers should not exceed 15% of the capital and adoption of unified exchange rate. This would ensure a sound and vibrant economy towards achieving the Vision 2030 that advocates for well-functioning, efficient and stable financial system.