Bank-specific characteristics and financial distress of commercial banks in kenya
Loading...
Date
2024-11
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Empirical evidence on the banking industry in Kenya indicates that local banks have been prone to financial distress. Commercial banks in Kenya have been experiencing cycles in Financial Distress and though such cycles have been precipitated by Bank-Specific Characteristics in other countries. It is still a challenge for empirical investigation as to know whether Bank-Specific Characteristics significantly affect Financial Distress in Kenya’s banking industry. Subsequently, the basis of this research was to evaluate the connection between Bank-Specific Characteristics and Financial Distress of commercial banks in Kenya. Explicitly, the research was informed by the following: to determine the connection between Bank Size, Deposit Mobilization, Profitability Growth and Income Diversification on Financial Distress of commercial banks in Kenya; further, the research aimed to determine the moderating effect of bank concentration on the connection between bank-specific characteristics and financial distress of commercial banks in Kenya. The Gambler’s ruin theory, Gibrat law theory, Financial Intermediation theory, Wrecker’s theory, Agency theory, Modern portfolio theory and Institutional theory provided theoretical anchorage to the research. Positivism research philosophy and causal research design were adopted for the study. The research was a census of all the 36 fully operational commercial banks in Kenya for the period 2011 through 2019. Secondary data was utilized in this study. Data sources included: websites of the Central Bank of Kenya and individual Commercial Banks, audited financial statements and Annual supervision reports. Data analysis entailed use of descriptive and inferential statistics where the latter involved dynamic panel logistic regression analysis. Diagnostic tests undertaken in the study included: model specification, stationarity, autocorrelation, and multicollinearity tests. Hypotheses were tested at a significance level of 0.05. Data was displayed through frequency tables and graphs. Based on the dynamic panel Logistic regression analysis, the research revealed that Bank size had no significant effect on Financial Distress based on Bankometer Score (p= 0.062) and Zmijewski (p= 0.938). The study findings also suggested that Deposit Mobilization had an insignificant effect on Bankometer Score (p=0.761) and positive significant effect on Zmijewski Score (p= 0.019). Profitability Growth had an insignificant effect on both Bankometer Score (p=0.963) and negative insignificant effect on Zmijewski Score (p=0.445). Income Diversification had a significant effect on Bankometer Score (p=0.002) and negative insignificant effect on Zmijewski Score (p=0.137) on commercial banks in Kenya. Bank Concentration had a significant moderating effect on the connection between Bank Characteristics and Bankometer Score with (p=0.0000) Bank Concentration also had a significant moderating effect on the connection between Bank Characteristics and Zmijewski Score (p=0.0003). The study recommended that banks ought to embrace proactive measures to increase their deposit base by developing attractive deposit products and engaging in aggressive marketing, also engage in effective risk management practices that increases operational efficiency The study further recommends banks to diversifying their revenue streams into new business areas and markets while considering risks and capabilities
Description
A thesis submitted to the school of business, economics and tourism in partial fulfillment of the requirements for the award of degree of doctor of philosophy in business administration (finance option) of Kenyatta University, November 2024
Supervisor:
Dr. Eddie Simiyu,
Dr. Job Omagwa,