Main Article Content
Introduction: The collapse of several banks in Kenya followed by a possibility of acquisition of struggling banks led to bank runs in Kenya causing customers to withdraw their deposits from stressed banks and taking them to financially stable banks.
Aim of the Research: The paper investigated the determinants of Bank’s stability as proxied by asset quality in the Kenyan banking sector.
Data Collection: Monthly secondary data spanning from the period January 2015 to December 2019 was collected from central Bank of Kenya and Kenya National Bureau of Statistics.
Methodology: A multiple regression model with the help of SPSS statistical software was employed to address the objective of this study.
Main Results: The multiple regression model results indicated that liquidity ratio; inflation rate and lending rate results presented a negative but statistically significant relationship with banking stability indicating that a decrease in liquidity ratio, inflation rate and lending rates affect banking stability respectively. The results for loan growth and return on equity exhibited a positive but statistically significant relationship with banking stability indicating that an increase in growth of loans and returns on equity diminishes and enhances banking stability in Kenya respectively. Exchange rate results had a positive and statistically insignificant relationship with banking stability implying that exchange rate does not affect banking stability. Return on assets and public debt results indicated a negative and statistically insignificant relationship with banking stability implying that return on assets and a country’s public debt has no effect on banking stability respectively.
Recommendation: Banking financial stability is fundamental in reducing the far-reaching social and economic effect that could occur due to challenges facing the banking industry. The study recommends adoption of policies that minimize the negative effect of microeconomic and macroeconomic factors in the banking industry in Kenya.
Klaas J, Vagizova, V. Tools for assessing and forecasting financial stability of the commercial bank under conditions of instability. Investment Management and Financial Innovations. 2014;(4):157-163.
Central Bank of Kenya. Financial Sector Stability Report, Central Bank of Kenya; 2018.
Central Bank of Kenya. Financial Sector Stability Report, Central Bank of Kenya; 2016.
Ciha‟ki M, Mare D, Malecky. Y. The Nexus of Financial Inclusion and
Financial Stability. World Bank working Paper No. 7722; 2016.
Central Bank of Kenya. Financial Sector Stability Report, Central Bank of Kenya; 2017.
Pierre M, Terhi J. The impact of banking sector stability on the real economy. Swiss National Bank. Working paper series No.5; 2010.
Jokipii T, Monnin, P. The impact of banking sector stability on the real economy. Journal of International Money and Finance. 2013;32:1-16.
Ozili PK. Determinants of Banking Stability in Nigeria. MPRA Paper No. 94092; 2019.
Segoviano MA, Goodhart, CAE Banking stability measures. No. 627. International Monetary Fund. Working Paper; 2009:04.
Heffernan S, Fu M. The determinants of bank performance in China. Working Paper Series, WP-EMG-03-2008, Cass Business School, City University; 2008.
Diaconu RI, Oanea DC. The main determinants of bank’s stability. Evidence from Romanian banking sector. Procedia Economics and Finance. 2014;16(5):329–335.
Barth JR, Caprio G, Levine R. Bank regulation and supervision in 180 countries from 1999 to 2011. Journal of Financial Economic Policy. 2013;5(2):111-219.
Beltratti A, Stulz RM. The credit crisis around the globe: Why did some banks
perform better? Journal of Financial Economics. 2012;105(1):1-17.
Fratzscher M, König PJ, Lambert C. Credit provision and banking stability after the Great Financial Crisis: The role of bank regulation and the quality of governance. Journal of International Money and Finance. 2016;66:113-135.
Schaeck K, Cihák M. Competition, efficiency, and stability in banking. Financial Management. 2014;43(1):215-241.
Liu H, Molyneux P, Wilson JO. Competition and stability in European banking: A regional analysis. The Manchester School. 2013;81(2):176-201.
Abolfazl J, Shirin A, Zeinab K. The impact of macroeconomic determinants on banking stability and risk. Journal of Monetary and Banking Research. 2016; 9(29):487-511.
Tan Y, Anchor J. Does competition only impact on insolvency risk? New evidence from the Chinese banking industry. International Journal of Managerial Finance. 2017;13(3):332- 354.
Ozili PK. Banking stability determinants in Africa. International Journal of Managerial Finance. 2018;14(6):34-47.
Raluca ID, Dumitru CO. The main determinants of bank’s stability. Evidence from Romanian Banking Sector. Elsevier Journal. 2014;9(16):329-335.
Gamze OD. Determinants of bank stability: A financial statement analysis of Turkish Banks. Socioeconomic Journal. 2018; 26(38):87-103.
Kiemo MS, Olweny TO, Muturi WM, Mwangi WL. Bank-specific determinants of commercial banks financial stability in Kenya. Journal of Applied Finance & Banking. 2019;9(1):119-145.
Adaramola AO, Adejayan A.O. Determinants of financial stability of deposit money banks in Nigeria. International Journal of Innovative Research. 2020;9(4):255-262.