Financial Repression Policies and Performance of Selected Commercial Banks in Kenya
Loading...
Date
2020
Authors
Auma, Ong’ong’e Caroline
, Eddie Simiyu
Journal Title
Journal ISSN
Volume Title
Publisher
Sage Global Publishers
Abstract
Financial repression still has a major effect on the performance of commercial banks 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 of this study
were to ascertain the effects of interest rates control, domestic government debt, capital controls
and reserve and liquidity ratio on the performance of commercial banks in Kenya. The study
explored the moderating effect of competition. Bank’s profitability will be considered as
dependent variable in this study while interest rate ceiling, domestic government debt, capital
controls and reserve and liquidity ratio were considered independent variables, with Competition
as the moderator in the study. The study was anchored on three theories namely financial
repression theory, public finance theory and public policy theory. The study targeted 36 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 of this study was to establish the effects of
financial repression policies on the performance of selected commercial banks in Kenya.
Secondary data capturing the performance of the commercial banks was obtained from published
audited financial statements, CBK 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. The data was analyzed using 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 influence performance; government debt was seen to have inverse relationship
with performance of commercial banks in Kenya; capital control has direct relationship with
performance of commercial banks in Kenya; and reserve ratios had positive influence on
performance of commercial banks in Kenya. 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 Article in the Int Journal of Social Sciences Management and Entrepreneurship
Keywords
Financial repression, Capital control, Capital reserve, Commercial banks, Competition, Financial liberations, Financial performance, Government Debt,, Interest rate ceiling
Citation
ONG’ONG’E, C. A., & EDDIE, S. (2021). FINANCIAL REPRESSION POLICIES AND PERFORMANCE OF SELECTED COMMERCIAL BANKS IN KENYA. International Journal of Social Sciences Management and Entrepreneurship (IJSSME), 4(1).