Competition, Profitability, Risk-Taking Behaviour and Stability of Commercial Banks in Kenya

Abstract

Stable commercial banks stimulate economic growth by facilitating value exchanges. The stability of commercial banks in Kenya has been a concern because of the waves of collapse that have dotted the history of the banking sector. Studies on the drivers of bank stability are essential for providing policy directions to improve bank stability. Due to existing conflicting empirical evidence, this study further analyzes the relationship between competition, profitability, risk-taking behavior, and stability of commercial banks in Kenya. The study was guided by three theories: Too Big to Fail Theory, Agency Theory, and Competition Fragility Hypothesis. This study employed a causal research design with 31 licensed commercial banks in Kenya as the target population. The study extracted data from published financial statements of licensed commercial banks for the period 2001 to 2020. The data were analyzed using the Generalized Method of Moments (GMM). The study finds that increased competition and reduced market concentration result in a more stable banking sector. The competition stability nexus is confirmed by the study, implying that measures should be implemented to foster competition and increase profitability among banks. This includes reduced barriers to entry and optimal capital requirements. A significant positive relationship between profitability and stability of commercial banks was found, implying that more profitable banks have a lower affinity for risk taking, thus making them more stable. The results indicate that banks’ risk-taking behavior has an inverse relationship with stability. The study contributes valuable insights to the existing literature by enhancing the understanding of banking industry performance and aids policymakers, investors and banks in formulating effective strategies. Measures should be implemented to ameliorate excessive risk-taking by banks. The employment of elaborate exposure monitoring systems with clear warning signs is encouraged
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APA

Wanjiru, W (2024). Competition, Profitability, Risk-Taking Behaviour and Stability of Commercial Banks in Kenya. Afribary. Retrieved from https://tracking.afribary.com/works/competition-profitability-risk-taking-behaviour-and-stability-of-commercial-banks-in-kenya

MLA 8th

Wanjiru, Wahinya "Competition, Profitability, Risk-Taking Behaviour and Stability of Commercial Banks in Kenya" Afribary. Afribary, 16 Jul. 2024, https://tracking.afribary.com/works/competition-profitability-risk-taking-behaviour-and-stability-of-commercial-banks-in-kenya. Accessed 14 Nov. 2024.

MLA7

Wanjiru, Wahinya . "Competition, Profitability, Risk-Taking Behaviour and Stability of Commercial Banks in Kenya". Afribary, Afribary, 16 Jul. 2024. Web. 14 Nov. 2024. < https://tracking.afribary.com/works/competition-profitability-risk-taking-behaviour-and-stability-of-commercial-banks-in-kenya >.

Chicago

Wanjiru, Wahinya . "Competition, Profitability, Risk-Taking Behaviour and Stability of Commercial Banks in Kenya" Afribary (2024). Accessed November 14, 2024. https://tracking.afribary.com/works/competition-profitability-risk-taking-behaviour-and-stability-of-commercial-banks-in-kenya

Document Details
Wahinya Purity Wanjiru, Field: Economics Type: Thesis 74 PAGES (17949 WORDS) (pdf)