BANK-SPECIFIC CHARACTERISTICS, BANK CONCENTRATION AND FINANCIAL DISTRESS OF COMMERCIAL BANKS IN KENYA
BANK-SPECIFIC CHARACTERISTICS, BANK CONCENTRATION AND FINANCIAL DISTRESS OF COMMERCIAL BANKS IN KENYA
Mary Wangechi Githinji - PhD Student, Kenyatta University, Kenya
Dr. Eddie Simiyu - Department of Accounting and Finance, Kenyatta University, Kenya
Dr. Job Omagwa - Department of Accounting and Finance, Kenyatta University, Kenya
ABSTRACT
Empirical evidence on the banking industry in Kenya indicates that local banks have been prone to financial distress. Commercial banks in Kenya have been experiencing cycles in Financial Distress and though such cycles have been precipitated by Bank-Specific Characteristics in other countries. It is still a challenge for empirical investigation as to know whether Bank-Specific Characteristics significantly affect Financial Distress in Kenya’s banking industry. Subsequently, the basis of this research was to evaluate the connection between Bank-Specific Characteristics and Financial Distress of commercial banks in Kenya. Explicitly, the research was informed by determining the moderating effect of bank concentration on the connection between bank-specific characteristics and financial distress of commercial banks in Kenya. The Gambler’s ruin theory, Wrecker’s theory, Agency theory and Institutional theory provided theoretical anchorage to the research. Positivism research philosophy and causal research design were adopted for the study. The research was a census of all the 36 fully operational commercial banks in Kenya for the period 2011 through 2019. Secondary data was utilized in this study. Data sources included: websites of the CBK and individual Commercial Banks, audited financial statements and Annual supervision reports. Data analysis entailed use of descriptive and inferential statistics where the latter involved dynamic panel logistic regression analysis. Diagnostic tests undertaken in the study included: model specification, stationarity, autocorrelation, and multicollinearity tests. Hypotheses were tested at a significance level of 0.05. Data was displayed through frequency tables and graphs. Based on the dynamic panel Logistic regression analysis, the research revealed that Bank Concentration had a significant moderating effect on the connection between Bank Characteristics and Zmijewski Score (p=0.0003). The study recommended that CBK should take into account bank concentration when designing policies and strategies for commercial banks. Specifically, regulators of commercial banks should consider the level of bank concentration in a particular market and how it can affect the relationship between different bank-specific characteristics and financial distress. This could involve measures such as encouraging competition among banks, regulating mergers and acquisitions, and promoting diversity in the banking sector to mitigate the negative impact of bank concentration on financial stability.
