MEASURES COMMERCIAL BANKS HAVE TAKEN TO ENSURE COMPLIANCE WITH THE CAPITAL ADEQUACY REQUIREMENT IN BASEL III FRAMEWORK

Kevin N Kombo,Dr Amos Njuguna

doi:10.47672/ajf.163

Kevin N Kombo, Dr Amos Njuguna

Open Access

https://doi.org/10.47672/ajf.163

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Abstract

Purpose: The purpose of the study was to establish measures commercial banks have taken to ensure compliance with the capital adequacy requirement in Basel III framework.Methodology: A descriptive survey design was applied to a population of 43 commercial banks operating in Kenya. The target population composed of the 159 management staff currently employed at the head offices of the various commercial banks in Kenya. The population was composed of Senior, Middle and Junior or Entry level Management staff. A sample of 30% was selected from within each group. Primary data was gathered using questionnaires which were dropped off at the bank’s head offices and picked up later when the respondents had filled the questionnaires. Descriptive analysis was used to analyze quantitative data while content analysis was used to analyze qualitative data.Results: Based on the findings the study concluded that the commercial banks in Kenya have taken various measures to ensure compliance with capital adequacy requirement such as cutting back on lending, market rights issue/bonds, increasing revenue growth/cutting costs and withholding dividend payment. In addition, the study concluded that commercial banks, in a bid to reduce the challenges experienced in the implementation of capital adequacy requirement, they opt to purchase high quality liquid assets, increasing their maturity profile and increasing retail deposits.Unique contribution to theory, practice and policy: The study recommends that it is vital to understand the forces behind the increasing sophistication and efficiency of risk management systems, before adopting them more widely for regulatory purposes

Highlights

IntroductionThe global financial crisis of 2009-2010 spurred the need to review the regulatory framework of banks across the globe
1.1 Background of the StudyThe global financial crisis of 2009-2010 spurred the need to review the regulatory framework of banks across the globe
The response rate demonstrates a willingness of the respondents to participate in the study on the effects of Basel III framework on capital adequacy requirement in commercial banks in Kenya

Summary

Introduction

The global financial crisis of 2009-2010 spurred the need to review the regulatory framework of banks across the globe. Reforms were necessary to rectify flaws in the regulatory framework. The Basel Committee on Banking Supervision (BCBS) is leading efforts to reform the global banking regulatory framework (BCBS, 2010a). In December 2010, BCBS announced Basel III proposals which national regulators and regional supervisory organisations are reviewing to evaluate its suitability to conditions in their own financial systems. According to Bean (2009), the banks were undercapitalised which is one of the reasons behind the 2007-2010 financial crises. The financial crisis 2007-2009 still has effects on international financial markets and the real economy

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