Financial Repression Policies and Performance of Selected Commercial Banks in Kenya
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Date
2021
Authors
Ong’ong’e, Caroline Auma
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Financial repression still has a major influence on commercial banks performance in Kenya. From 1992 the country has had financial liberalization policies, however in the recent past the country adopted financial repression policies like the Interest rate capping law. This research discusses how the Kenyan government has used financially repressive policies since 2010 to 2018 and how it affects the commercial banking sector in Kenya. The specific objectives were to ascertain the effects of interest rates control, domestic government debt, capital controls and reserve and liquidity ratio on performance of commercial banks. The study explored competition moderating influence. Bank‟s performance will be considered as dependent variable while interest rate controls, government debt, capital controls and reserve ratio were considered independent variables, with Competition as the moderator in the study. The study was anchored on financial repression theory, public finance theory and public policy theory. There were 36 targeted licensed commercial banks that have been consistently in operation from the year 2010 to 2018 out of the 43 registered ones, leaving out 7 commercial banks which are either acquired by other banks, under receivership or statutory management. The objective was to determine the effects of financial repression policies on performance of selected Kenyan commercial banks. Secondary data capturing the performance of the commercial banks was obtained from published audited financial statements, Central Bank of Kenya publications and journals, National Bureau of Statistics and International Financial Statistics covering the period from 2010 to 2018. The analysis was done in descriptive statistics, checking the measure of central tendency, measure of dispersion and measure of peakedness. Data analysis was by inferential statistics, Pearson correlation and the static panel regression model using Stata version 15. The data was subjected to diagnostic tests to test for any violation of regression analysis. The study found that interest rate controls positively and significantly influences performance; government debt was seen to have inverse relationship with commercial banks performance; capital control has direct relationship with commercial banks performance; and reserve ratios had positive influence on commercial banks performance. The study therefore recommends Central bank of Kenya to develop policies that will ensure that interest rate spreads are maintained at its lowest; this can be achieved by removing interest rate barriers which will in turn spur growth for commercial banks. Also, management of commercial banks to ensure that they maintain their implicit interest rate at its minimum in order to lower their operation cost and as a result increases their profits
Description
A Research Project Submitted to the School of Business in Partial Fulfilment of the Requirements for the Award of the Degree of Master of Business Administration (Finance Option) of Kenyatta University, June 2021
Keywords
Financial Repression Policies, Performance, Selected Commercial Banks, Kenya