Impact of Covid-19 on the Financial Stability of Commercial Banks in Kenya
| dc.contributor.author | Mathenge, Noah Muthondu | |
| dc.date.accessioned | 2025-02-10T13:51:52Z | |
| dc.date.available | 2025-02-10T13:51:52Z | |
| dc.date.issued | 2024-07 | |
| dc.description | Countries worldwide were gripped by the COVID-19 pandemic for the greater part of 2020 and 2021. COVID-19 spread to virtually all nations around the globe causing contraction in the global economy and Kenya was no exception. Governments worldwide deployed social distancing, lockdowns, and curfews, resulting in employee lay-off, business closure, and suppressed demand for commodities and services eventually trickling down to commercial banks. The Kenyan banking sector experienced deterioration in asset quality which has been worsening since 2014 when it stood at 5.6 percent, reaching an all-time high of 14.5 percent in 2020, whereas Return on Assets which has also been declining since 2014 stood at 4.46 percent dropped to a record low of 2.07 percent in 2020 during the pandemic. Therefore, the researcher sought to establish how the COVID-19 shock has impacted the financial stability of Kenyan commercial banks. The study sought to specifically establish how the COVID-19 pandemic impacted both Z-score and capital adequacy of Kenyan commercial banks. The study was anchored on the financial intermediation theory, capital buffer theory, and the financial instability hypothesis. A non-experimental research design was embraced while the financial stability proxy was Z-score. The study targeted 19 commercial banks in Kenya between the years 2015 to 2022 which had complete data on all the study variables. Annual bank level secondary data was acquired from Kenya`s Central Bank annual reports of supervision from 2015 to 2022. The event study methodology was used while collecting data whereby, the event window was 2020 to 2021, the span before the event (COVID-19) was 2015 to 2019, and the spell after the event was 2022. The study embraced a panel vector autoregression methodology for data analysis whereby, impulse response functions were generated. The outcome of the impulse response functions revealed a negative impact of COVID-19 on both Z-score and capital adequacy. Based on the study findings, the Government of Kenya ought to institute non-disruptive pandemic control measures such as practicing proper hygiene and wearing of masks as opposed to quarantines and lockdowns which are detrimental to businesses ultimately leading to a decline in income for commercial banks. Moreover, since capital acts as a shock absorber for banks, Kenyan commercial banks should strive to achieve and maintain the minimum capital adequacy ratios set by the Central Bank of Kenya. This will ensure commercial banks in Kenya cushion themselves against economic shocks generated by pandemics such as COVID-19. | |
| dc.description.abstract | Countries worldwide were gripped by the COVID-19 pandemic for the greater part of 2020 and 2021. COVID-19 spread to virtually all nations around the globe causing contraction in the global economy and Kenya was no exception. Governments worldwide deployed social distancing, lockdowns, and curfews, resulting in employee lay-off, business closure, and suppressed demand for commodities and services eventually trickling down to commercial banks. The Kenyan banking sector experienced deterioration in asset quality which has been worsening since 2014 when it stood at 5.6 percent, reaching an all-time high of 14.5 percent in 2020, whereas Return on Assets which has also been declining since 2014 stood at 4.46 percent dropped to a record low of 2.07 percent in 2020 during the pandemic. Therefore, the researcher sought to establish how the COVID-19 shock has impacted the financial stability of Kenyan commercial banks. The study sought to specifically establish how the COVID-19 pandemic impacted both Z-score and capital adequacy of Kenyan commercial banks. The study was anchored on the financial intermediation theory, capital buffer theory, and the financial instability hypothesis. A non-experimental research design was embraced while the financial stability proxy was Z-score. The study targeted 19 commercial banks in Kenya between the years 2015 to 2022 which had complete data on all the study variables. Annual bank level secondary data was acquired from Kenya`s Central Bank annual reports of supervision from 2015 to 2022. The event study methodology was used while collecting data whereby, the event window was 2020 to 2021, the span before the event (COVID-19) was 2015 to 2019, and the spell after the event was 2022. The study embraced a panel vector autoregression methodology for data analysis whereby, impulse response functions were generated. The outcome of the impulse response functions revealed a negative impact of COVID-19 on both Z-score and capital adequacy. Based on the study findings, the Government of Kenya ought to institute non-disruptive pandemic control measures such as practicing proper hygiene and wearing of masks as opposed to quarantines and lockdowns which are detrimental to businesses ultimately leading to a decline in income for commercial banks. Moreover, since capital acts as a shock absorber for banks, Kenyan commercial banks should strive to achieve and maintain the minimum capital adequacy ratios set by the Central Bank of Kenya. This will ensure commercial banks in Kenya cushion themselves against economic shocks generated by pandemics such as COVID-19. | |
| dc.description.sponsorship | Kenyatta University | |
| dc.identifier.uri | https://ir-library.ku.ac.ke/handle/123456789/29551 | |
| dc.language.iso | en | |
| dc.publisher | Kenyatta University | |
| dc.title | Impact of Covid-19 on the Financial Stability of Commercial Banks in Kenya | |
| dc.type | Thesis |