Banks In Kenya Research Articles

Effect of Inflation Rate on government bond yields listed at the Nairobi Securities Exchange.

This study aimed to determine the effect of inflation rates on government bond yields listed on the Nairobi Securities Exchange (NSE). The primary objective was to assess how fluctuations in inflation impact the yields of 15-year government bonds over a 16-year period, from the first quarter of 2007 to the first quarter of 2023. The study applied liquidity premium theory, as posited by Brennan (1979), which suggests that investors require a liquidity premium, or higher yield, during inflationary periods to compensate for the erosion of purchasing power in fixed-income investments. Given this theoretical framework, the research sought to quantify the relationship between inflation rates and bond yields, considering how rising inflation prompts higher yields to maintain purchasing power.The study employed a causal-comparative research design, utilizing secondary data on bond yields and inflation rates sourced from NSE and Central Bank of Kenya records. Key diagnostic tests, such as the Jarque-Bera test for normality, Breusch-Pagan-Godfrey test for heteroscedasticity, and Augmented Dickey-Fuller test for stationarity, ensured data validity and reliability. The Vector Error Correction Model (VECM) was used to analyze both short- and long-term relationships between inflation and bond yields. Findings revealed a statistically significant positive correlation between inflation rates and government bond yields, with inflation accounting for 45% of the variance in bond yields. The standardized coefficient of 0.67 suggested a moderate-to-strong association, highlighting inflation’s critical role in bond pricing. Based on these results, it is recommended that investors and policymakers closely monitor inflation trends as they influence bond yields and market performance. Further research could explore other macroeconomic factors, such as interest rates, to offer a more comprehensive view of bond market dynamics in emerging economies.

Effect of External Debt On the Financial Performance of Commercial Banks in Kenya (2008-2022)

This study analyses the impact of external debt on the financial performance of commercial banks in Kenya for the period 2008-2022. Employing descriptive, correlational, and inferential research designs, the study reviewed data from the Central Bank of Kenya, the World Bank, KNBS, and IMF on a quarterly basis. By employing the Augmented Dickey-Fuller test, ROE and external debt were further qualified to be stationary at first difference. The results highlighted by the Autoregressive Distributed Lag (ARDL) analysis indicated a statistically significant negative relationship between external debt and financial performance; the coefficients (-0.8998) confirmed that for every unit of increase in external debt, there would be a decline in ROE by 0.8998 units. The study establishes that external debt has been detrimental to the financial health of Kenyan banks due to the economic pressure it brings to the sector. For this purpose, it suggests that the government should avoid borrowing from external sources, and it has advised the development of measures that encourage overseas investors to invest in the country's banking sector. The policy of attracting FDI can enhance capital availability and alleviate the financial load on banking institutions. Relaxing regulations that restrict foreign investors would pave the way for this and help increase the bank’s performance, thus enhancing long-term economic growth.

Dynamic Capabilities and Competitive Advantage among Listed Commercial Banks in Kenya

Purpose: This study sought to evaluate how dynamic capabilities affect competitive advantage among listed commercial banks, in Kenya. Specifically, the study sought to ascertain how Sensing capability, learning capability, reconfiguration capability and integration capability affects competitive advantage among listed commercial banks, in Kenya. Methodology: This study used Cross-Sectional Research Design since the study focused on quantitative data. The study was carried out in Kenya, covering all the 39 solvent commercial banks in Kenya (Source, CBK 2020),(as of 31st March 2024.The respondents were 1404 functional managers which comprise of five (5) from Human Resource ,five (5) from information Technology ,Ten (10) from Sales and marketing ,five (5) from procurement, and five(5) from risk and compliance. The study used 10% of the target population as the study sample size hence the sample size was 140 respondents comprising of management employees. Data was collected using a self-administered structured questionnaire. The Statistical Package for Social Sciences (SPSS) version 25 software was used to analyze the data. Findings: The study concludes that sensing capability has a significant effect on competitive advantage among listed commercial banks, in Kenya. In addition, the study concludes that learning capability has a significant effect on competitive advantage among listed commercial banks, in Kenya. Further, the study concludes that reconfiguration capability has a significant effect on competitive advantage among listed commercial banks, in Kenya. The study also concludes that integration capability has a significant effect on competitive advantage among listed commercial banks, in Kenya. Unique Contribution to Theory, Policy and Practice: Based on the findings, the study recommends that the management of commercial banks in Kenya should implement a comprehensive knowledge management system that encourages continuous professional development and collaboration among employees. By establishing structured training programs, mentorship initiatives, and cross-departmental knowledge sharing, banks can foster a culture of innovation and adaptability.

Effect of Earnings Quality on Operational Efficiency of Commercial Banks in Kenya

Effect of Earnings Quality on Operational Efficiency of Commercial Banks in Kenya

Monetary Policy Instruments and Financial Performance of the Banking Industry in Kenya

The Kenyan banking sector has faced significant volatility in recent years, notably marked by a decline in Return on Assets (ROA). This decrease reflects the sector's struggles with rising inflation, currency depreciation, and increased non-performing loans. Economic uncertainties and tighter global monetary policies have compounded these challenges, resulting in a more unstable financial environment. This volatility underscores the sector's sensitivity to both domestic and international economic conditions. In response, this research aimed to investigate the effect of monetary policy instruments on the financial performance of banks in Kenya. The study sought to analyze the effect of lending rates, money supply, open market operations (OMO), and the Central Bank Rate (CBR) on banks' financial performance. Anchored on four relevant theories—the Loanable Funds Theory, Quantity Theory of Money, Keynesian Economics, and Zero Bound Theory. The research utilized a causal design and a multiple linear regression model. Covering all 42 banks operating in Kenya from January 2009 to December 2023, the study employed secondary data. The correlation analysis reveals significant relationships between the monetary policy instruments and the financial performance of commercial banks in Kenya. Lending rates demonstrate a positive relationship with financial performance, suggesting that higher rates may benefit banks’ profitability. In contrast, both money supply and central bank rate show negative associations with financial performance, implying that increases in these variables might hinder profitability. Additionally, the analysis indicates a positive link between open market operations and bank performance, highlighting the varied effects of these monetary instruments on the banks' financial outcomes. Collectively, these insights underscore the interconnectedness of these monetary policy instruments and their impact on the financial performance of banks in Kenya. Given the complex interplay of these factors, policymakers should adopt a holistic view, regularly reviewing and adjusting policies to maintain economic stability while supporting a robust banking sector.

Interest Rates Risk and Financial Performance of Commercial Banks in Kenya

Interest Rates Risk and Financial Performance of Commercial Banks in Kenya

Digital Innovations and Competitive Advantage of Commercial Banks in Kenya

Purpose: The purpose of the study was to ascertain the role of digital banking technological innovations in enhancing competitive advantage among commercial banks in Kenya. Specifically, the study sought to examine the influence of digital technological innovations for market, digital banking innovations for differentiation, digital innovations for customer satisfaction and the influence of ICT infrastructure on competitive advantage of commercial banks in Kenya Methodology: Descriptive research design was adopted for the present study. The study was carried out in Kenya, covering all the 39 solvent commercial banks in Kenya as of 31st March 2024. The study adopted the census data collection method from the headquarters of the 22 solvent commercial banks belonging to Tier 3. Four key officers including the sales manager, loan officer, relationship manager, and risk manager totaling to 88 were sampled to participate in the study. Findings: The findings indicate that there is a significant relationship between market positioning and competitive advantage (B = 0.292, p = 0.003). On the other hand, Differentiation is established to have a negligible influence on competitive advantage in this model (B = 0.027, p = 0.852). Customer Satisfaction comes out strongly, as a factor that defines competitive advantage (Coefficient = 0.247, P = 0.046). Unique Contribution to Theory, Policy and Practice: The study recommends that Kenyan commercial banks invest in continuous digital innovation, particularly in mobile and Internet banking, to strengthen market positioning, improve brand perception, and offer personalized services. Banks should also enhance their ICT frameworks for better service delivery, data protection, and adaptability to market changes. Emphasizing mobile banking innovations and staying updated with emerging digital trends will help banks reduce customer acquisition costs, expand their customer base, and maintain a competitive edge in a dynamic industry.

Treasury Bill Investment and Financial Performance of Tier Three Commercial Banks in Kenya

Purpose: Bank tier categorization is determined by size, complexity, and regulatory requirements, with criteria varying by country and authority (CBK, 2020). Tier 3 banks are the smallest, providing basic services to individuals and small businesses (CBK, 2020). This study investigated the impact of Treasury bill investment on the financial performance of Tier 3 commercial banks in Kenya. Methodology: This study was grounded on the theory of Capital Asset Pricing. The study used secondary data from the Central Bank of Kenya and audited financial statements from 2015 to 2022. Focusing on Return on Assets, the findings aimed to help Tier 3 banks optimize financial performance. Findings: Results showed that investing in treasury bills significantly improved financial performance of tier three commercial banks. Unique Contribution to Theory, Practice and Policy: The study recommended that policy makers should come up with policies that favor allocating more investment capital towards Treasury bill investment so that banks may seize opportunities to optimize their investment strategies and consequently strengthen their overall financial performance in the market.

Developing a Hybrid ARIMA-XGBOOST Model for Analysing Mobile Money Transaction Data in Kenya

This study formulated a hybrid ARIMA-XGBOOST model using the dataset from the Central Bank of Kenya and the objective was to formulate a Hybrid ARIMA-XGBOOST models to capture the patterns and dynamics in Mobile Money Transactions in Kenya. The study was motivated by the gaps that existed from the previous studies which lacked the ability to model both linear and non-linear trends in the data across time period. Since 2007 when Mpesa was invented, the rate of Mobile Money transactions has rose steadily and this required a complex model that will provide a clear trend. To accurately model the dynamics of Mobile Money Transactions in Kenya, this study presented a complex Hybrid model. The model was formulated by combining Autoregressive Integrated Moving Averages (ARIMA) and Extreme Gradient Boosting (XGBOOST). The ARIMA captures the linear trends of the data while the XGBOOST models the non-linear part and trained to model the ARIMA residuals. The model parameters were evaluated using Mean Absolute Error, Root Mean Square Error among others and confirmed to be accurate and reliable. Based on the findings from the ADF coefficient, the stationary condition was met (P-value=0.01), and therefore we proceeded to develop the ARIMA models. Initial diagnoses included model identification and examination of autocorrelation to determine the ARIMA configurations, whereas the Box-Jenkins test confirmed the models' adequacy (P-value=2.220e-16). Based on Mean Absolute Error (MAE), Root Mean Square Error (RMSE), Mean Absolute Percentage Error (MAPE), and Mean Percentage Error (MPE), which are all below 1 percent, indicates that the performance of the models had high prediction accuracy.

Firm Characteristics, Interest Rate And Financial Performance Of Microfinance Banks In Kenya

Microfinance Banks gives the forte to improve the economic activity of low-income individuals and eliminate poverty, resulting in economic progress. However, microfinance's Banks financial performance in Kenya has declined over time. The objective of this study is to investigate firm characteristics, interest rate and financial performance of microfinance banks in Kenya. The study was grounded on buffer capital, efficiency structure and interest rate parity theories. The study research methodology rested on positivism research philosophy. Research design was explanatory non-experimental design. Secondary panel data was utilized. 13 microfinance banks in Kenya were target. Information was gathered using secondary data sources from microfinance banks accounting report from 2016 to 2022. Data was analysed using descriptive and inferential statistics. The study used multiple regressions and Pearson’s Product Moment Correlation analysis. All ethical considerations were appropriately observed. Findings indicated that adequacy of capital exerts a notable and direct effect on financial performance, underscoring the importance for microfinance banks in Kenya to prioritize maintaining sufficient capital levels to support their overall stability and financial outcomes. Conversely, quality of asset demonstrates a significant and adverse influence on performance financially, highlighting the need for microfinance banks to enhance their credit assessment processes to ensure the quality of their loan portfolios. The research revealed that efficiency of management has an insignificant direct influence on financial performance of Microfinance banks. To address this, microfinance banks are advised to invest in comprehensive management training programs and capacitybuilding initiatives to improve operational effectiveness and decision-making processes. Earning ability, on the other hand, exhibits a considerable and direct influence on financial performance. Microfinance banks should thus focus on continuous innovation of their products and services to enhance their earning potential and overall financial outcomes. Liquidity levels exhibit an insignificant and inverse effect on the financial performance outcomes. To mitigate potential risks, microfinance banks should establish comprehensive policies and procedures to monitor and manage liquidity effectively. Interestingly, the study reveals that the connection concerning firm-level attributes and financial outcomes for microfinance institutions in Kenya does not appear to be subject to a substantial moderating influence from interest rate movements. Therefore, the survey recommends that microfinance banks concentrate on improving governance structures, operational efficiency, risk management practices, and asset quality. This can be achieved through capacity-building programs, training initiatives, and adopting best practices from successful microfinance institutions. Strengthening these firm characteristics will enable microfinance banks to enhance their financial performance, irrespective of interest rate fluctuations

The Influence of Budget Planning on Financial Expenditure: Evidence from Tier One Commercial Banks in Nairobi County, Kenya

This study examines the influence of budget planning on financial expenditure among tier one commercial banks in Nairobi County, Kenya. The research was grounded in Agency Theory. Using a descriptive survey design, data was collected from 112 respondents across six tier one banks. The study employed correlation and regression analyses to investigate the relationship between budget planning practices and financial expenditure. Results indicate a strong positive correlation between budget planning and financial expenditure (r=0.684, p<0.01). Regression analysis revealed that budget planning significantly influences financial expenditure (β=0.327, p<0.05), explaining 32.1% of the variance. The findings suggest that effective budget planning practices lead to improved control over financial expenditure in tier one commercial banks. This study contributes to the understanding of budgetary control practices in the Kenyan banking sector and provides practical implications for bank management.

Influence of Expected Loan Loss on Operational Performance of Commercial Banks in Kenya

Purpose: The main objective of this study was to examine influence of credit risk stress testing on operational performance of commercial Kenya. The theoretical framework was based on credit risk theory. Methodology/Approach: The study used all commercial banks which are 42 it total. The adopted mixed research comprising of causal and longitudinal research designs. The study used secondary data from operational statements of banks. Descriptive applied involved skewness, kurtosis, mean and standard deviation. Multiple regression analysis was also applied. Data was presented using tables. Findings: The results revealed that expected loan loss lead to performance of commercial Banks as shown by a positive and significant coefficient of in the regression model in a fixed effect model. Implications: The study suggested that operational institutions implement a stringent policy that escalates the loss in the event of default, thereby restricting loan approvals to clients who can guarantee they will repay the loan in full.

How do Attributes of a Leader’s Authenticity Affect Performance in a Bank Setting? A Mixed Method Survey of Commercial Banks in Kenya

How do Attributes of a Leader’s Authenticity Affect Performance in a Bank Setting? A Mixed Method Survey of Commercial Banks in Kenya

Relationship between the composition of the audit committee and earnings quality in Tier One banks in Nairobi City County, Kenya.

This study investigates the relationship between audit committee composition and earnings quality in Tier One banks in Nairobi City County, Kenya. The composition of audit committees, particularly the presence of independent directors, financial experts, and industry experts, is hypothesized to significantly influence the quality of reported earnings. Using a sample of six Tier One banks over the period 2016-2021, this study employs a correlational research design to examine this relationship. Data was collected through questionnaires administered to 90 respondents across operational, middle, and lower management levels, with a response rate of 67%. The study utilized descriptive statistics, correlation analysis, and multiple regression analysis to analyze the data. Key findings indicate a positive and statistically significant relationship between audit committee composition and earnings quality. Specifically, the presence of independent directors (r = 0.38, p < 0.05), financial experts (r = 0.29, p < 0.05), and industry experts (r = 0.26, p < 0.05) on the audit committee were all positively correlated with measures of earnings quality. The regression analysis further confirmed these relationships, controlling for other audit committee characteristics such as size and meeting frequency. These findings suggest that the composition of audit committees plays a crucial role in enhancing the quality of financial reporting in Tier One banks in Kenya. The study recommends that regulatory bodies and bank management prioritize the appointment of independent directors with relevant financial and industry expertise to audit committees. This research contributes to the existing literature on corporate governance in the banking sector and provides practical implications for improving financial reporting quality in emerging markets.

Effect of Public Wages on External Debt in Kenya

Most developing Africa countries have a high need for capital projects that requires a lot of government spending and attention. However, it is unfortunate that in Kenya, borrowed cash intended for capital projects is diverted to recurrent requirements putting a damper on national investment in viable projects. This poses a significant threat to the economy's growth. The following goal served as a guideline for the study; to determine the influence of public wages on external borrowing debt in Kenya using both cointegration and error correction model. Causal research design was adopted to explain the influence of public wages on external borrowing in Kenya. The study period was from 1970 and 2019 from which a 50-year time series data was employed for analysis. The research relied on secondary data which was collected with the aid of a structured data collection checklist from Central Bank of Kenya, and Kenya National Bureau of Statistics, and World Bank websites. Data analysis was done with an aid of stata, E-views and Ox-Metrics statistical software. Stationarity of variables was tested using PP unit root test where public wages was reported to be stationary at level form. The study employed the use of Ordinary Least Square (OLS) technique in the analysis. There was a significant negative association between public wages and external debt whereby a rise in public wage by 100% indicated decrease in external debt by 101.92%. The overall model was found to be significant since the F-statistic value generated in the analysis was 124.664 with a p-value of 0.000 < 0.05. Model was a good predictor of external borrowing, with an adjusted R<sup>2</sup> of 0.946 for public wages explaining foreign debt. This research recommends the study recommends that SRC should free up resources using the austerity measures which include wage reductions for government employees. Secondly, the government through the ministry of treasury should raise tax base to increase revenues. Finally, the results of this study may be valuable to government stakeholders who are charged with the responsibility of ensuring economic development through public sector financing, also it is expected to provide important information to policymakers in order to maintain external debt at manageable levels.

Product Idea Generation Strategy and Performance of Tier III Commercial Banks in Kenya

The aim of this study is to analyses the association between product idea generation strategy and performance of tier III commercial banks in Kenya. The reason for conducting this study is informed by the poor performance of Tier III commercial banks in Kenya. The study was guided by theory of new product development. The study was guided by explanatory research design. The target population involved 276 employees from 20 tier III commercial banks in Kenya. The research used Cochran formula to calculate the sample size which yielded 163 respondents who were selected using stratified random sampling design. The research used structured questionnaire as instrument of data collection. Data collected was analysed using quantitative methods. Data collected was analysed using quantitative methods. The study found out that there was significant positive relationship between idea generation and organisation performance (p<0.05). The paper recommends that a broad-based idea generation strategy to be incorporated by commercial banks to raise their performance

Do Bank Governance Mechanisms and Financial Report Lag Affect Audit Quality?

ABSTRACT In the aftermath of banking failures in Africa, the survival of firms has thus been placed with the application of good corporate governance practice and the oversight role of internal and external auditors. This study examines whether audit quality is related to corporate board of directors and financial reporting timeliness in the context of developing countries. Using sample data from 21 universal banks in Ghana and 31 commercial banks in Kenya for the periods 2010 to 2019. The study employs the Generalized Least Square(GLS), using fixed effect to estimate the relationships. The empirical results document that board size, average 9, and board independence, 59% on average, increase audit quality in Africa. However, the relationship between board gender and audit quality is not significant. Financial report lag is not significant to audit quality in Africa. However, financial report lag in Kenya is negative and significant to quality audit. Our findings recommend that commercial banks in Africa should implement policies that would increase the size of their boards and the number of independent directors to enhance maximum benefits from good corporate governance practices.

Corporate Social Responsibility, Bank Size and Customer Trust amongst Commercial Banks in Kenya

Despite the commercial banks’ significant position in Kenya's ever growing economy there is limited study on the influence of Corporate Social Responsibility (CSR) on consumer trust in the commercial banking industry. This study therefore sought to explore the impact of Corporate Social Responsibility (CSR) on customer trust in the commercial banking sector of Kenya. With focus on commercial banks, this research delved into how community investment, sustainable initiatives, stakeholder engagement, social welfare, and bank size influence customer trust. This study was anchored on Stakeholder Theory. A correlational research design was employed, targeting all the 39 commercial banks in Kenya. The analysis was centered on the banks as units of analysis, while observations were drawn from both customers and bank managers. The study used stratified sampling to select 384 bank customers population exceeding 1 million. Data was gathered through structured questionnaires and Key Informant Interview (KII), ensuring reliability and validity through Cronbach’s Alpha test and content/construct validity testing. Analysis was conducted using descriptive and inferential statistics, including regression analysis and ANOVA. The results were presented on tables, charts and bars. The findings revealed a coefficient of determination (R²) of 0.605 indicating that the CSR activities used in this study explain 60.5% of the variation in customer trust, suggesting a strong relationship between CSR and customer trust. The regression analysis demonstrated significant positive effects, with community investment (β = 0.354, p = 0.000), sustainable initiatives (β = 0.235, p = 0.003), stakeholder engagement (β = 0.275, p = 0.000), and social welfare (β = 0.329, p = 0.000) all positively influencing customer trust. Based on the findings, the study concludes that corporate social responsibility (CSR) activities, including community investment, sustainable initiatives, stakeholder engagement, and social welfare, significantly influence customer trust among commercial banks in Kenya. In view of the findings, the study recommends that commercial banks in Kenya should continue to invest in CSR activities as a strategic approach to enhance customer trust and loyalty. Policymakers should create supportive regulatory frameworks that encourage banks to adopt comprehensive CSR practices. Keywords: Corporate Social Responsibility, Community investment, Sustainable initiatives, Stakeholder engagement, Social welfare, Bank Size, Customer trust.

Corporate Social Responsibility, Bank Size and Customer Trust amongst Commercial Banks in Kenya

Despite the commercial banks’ significant position in Kenya's ever growing economy there is limited study on the influence of Corporate Social Responsibility (CSR) on consumer trust in the commercial banking industry. This study therefore sought to explore the impact of Corporate Social Responsibility (CSR) on customer trust in the commercial banking sector of Kenya. With focus on commercial banks, this research delved into how community investment, sustainable initiatives, stakeholder engagement, social welfare, and bank size influence customer trust. This study was anchored on Stakeholder Theory. A correlational research design was employed, targeting all the 39 commercial banks in Kenya. The analysis was centered on the banks as units of analysis, while observations were drawn from both customers and bank managers. The study used stratified sampling to select 384 bank customers population exceeding 1 million. Data was gathered through structured questionnaires and Key Informant Interview (KII), ensuring reliability and validity through Cronbach’s Alpha test and content/construct validity testing. Analysis was conducted using descriptive and inferential statistics, including regression analysis and ANOVA. The results were presented on tables, charts and bars. The findings revealed a coefficient of determination (R²) of 0.605 indicating that the CSR activities used in this study explain 60.5% of the variation in customer trust, suggesting a strong relationship between CSR and customer trust. The regression analysis demonstrated significant positive effects, with community investment (β = 0.354, p = 0.000), sustainable initiatives (β = 0.235, p = 0.003), stakeholder engagement (β = 0.275, p = 0.000), and social welfare (β = 0.329, p = 0.000) all positively influencing customer trust. Based on the findings, the study concludes that corporate social responsibility (CSR) activities, including community investment, sustainable initiatives, stakeholder engagement, and social welfare, significantly influence customer trust among commercial banks in Kenya. In view of the findings, the study recommends that commercial banks in Kenya should continue to invest in CSR activities as a strategic approach to enhance customer trust and loyalty. Policymakers should create supportive regulatory frameworks that encourage banks to adopt comprehensive CSR practices. Keywords: Corporate Social Responsibility, Community investment, Sustainable initiatives, Stakeholder engagement, Social welfare, Bank Size, Customer trust.

Prudential Regulations And Performance Of Finance Of Tier 2 Banks In Kenya

The research delves into the intricate relationship between prudential regulations and the performance of finance of Tier 2 banks in Kenya. Through a comprehensive analysis, the study aims to shed light on how adherence to prudential standards impacts the operational and financial outcomes of these banks. By examining key variables such as credit, liquidity, corporate governance, and capital regulations, the research seeks to uncover the underlying mechanisms that drive performance of finance within the banking sector. Drawing on a comparative design and employing a linear regression model, the study reveals significant insights into the effects of prudential rules on the performance of finance of Savings and Credit Cooperative Organizations (SACCOs) in Kenya. Prior to the implementation of prudential legislation, factors such as liquidity, membership growth, core capital, and credit management did not significantly predict performance of finance. However, post-implementation, these variables emerged as crucial determinants of financial success, emphasizing the importance of regulatory compliance for sustainable business growth. The findings underscore the necessity for SACCOs and Tier 2 banks to adhere to prudential standards to enhance their performance of finance and capitalize on increased business opportunities. By bridging the gap in existing literature and providing a nuanced understanding of the impact of prudential regulations, this research contributes valuable insights to the ongoing discourse on banking regulations and financial stability in Kenya