Effects of prudential regulations on the financial stability of commercial banks in Kenya
Date
2022
Authors
Osolo, James
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
Prudential regulation helps commercial banks to operate within a given framework so that their financial stability is not compromised through exposure to certain risks during operation. The goals of prudential regulation are thus considered as validation for financial system. Therefore, the current study sets to investigate the effects of prudential regulation on banking stability of commercial banks in Kenya. The specific objectives include; to determine how capital adequacy requirements, asset quality requirement ratio, and liquidity requirements ratio affect the stability of commercial banks in Kenya. The study used descriptive research design and the target population was all the 43 commercial banks in Kenya. The study used stratified random sampling technique to sample manageable commercial banks. Secondary data was collected from the websites of all the sampled banks. The secondary data covered a period of 21 (2000-2020). Data was analyzed using descriptive statistics and linear regression analysis. The study also used diagnostic tests to determine the reliability of the regression model. This study contributes to the literature knowledge gap in the same field. Thus, it will be a point of reference for future researches and academics hence they will be able to refer to the findings of this study and bridge the possible literature gaps that could have emanated from this research. The study found that, asset quality, capital adequacy, and liquidity requirements had positive relationship with financial stability of banks in Kenya. The study concluded that an increase in capital adequacy, asset quality and liquidity requirement regulations increased financial stability of the commercial banks. The study recommends that commercial banks’ management should increase their capacity in loan administration and that they should also establish clear lending guidelines. Additionally, the banks should ensure that the loan terms and conditions are conformed to during approval to reduce the chances of nonperforming loans that could subsequently affect conformity to asset quality requirement. The research also recommended that it is important for the commercial banks to be conscious of its liquidity position in different product and service segments.
Description
A Research dissertation submitted to the Strathmore University Business School in partial fulfillment for the Master of Science in Development Finance of Strathmore University
Keywords
Prudential regulations, Financial stability, Commercial banks_Kenya