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Banking Sector Consolidation and Stability in Kenya

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  • Samuel Kiemo (PhD)
  • Cyrus Mugo

Abstract

This paper sought to examine the evaluation of competition and stability conditions in the Kenya banking sector amidst adoption various aspects of consolidation. This was achieved by exploring evolution of competition and stability conditions using bank-level and peer-level annual data from 2001 to 2017 for 37 banks. The paper adopted three-step estimation approach; first, estimated two competition measures Lerner Index and Panzar-Rosse H statistics to assess evolution of competition conditions. Secondly, constructed two stability measures Altman Z - Score and Bankometer S - Score to assess evolution of stability conditions. Thirdly, using panel GMM estimators introduced the estimated competition measures as explanatory variables and re-examined stability conditions to evaluate the role of competition in promoting banking sector stability. The study findings indicate competition conditions have increased and can be characterized as monopolistic competition. The banking sector stability conditions are high and sound, though downward trending. Increase in level of competition promotes stability conditions. The paper concludes that, adoption of various aspect of banking sector consolidation has led to improved competition and stability conditions in Kenya. Banking sectors players should continue implementing and adopting various policies that promote competition and stability such as market driven consolidations. JEL classification numbers: G2, G01, G33.

Suggested Citation

  • Samuel Kiemo (PhD) & Cyrus Mugo, 2021. "Banking Sector Consolidation and Stability in Kenya," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 11(3), pages 1-6.
    • Handle: RePEc:spt:apfiba:v:11:y:2021:i:3:f:11_3_6
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    References listed on IDEAS

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    Cited by:

    1. Talam, Camilla & Kiemo, Samuel, 2024. "Interest rate risk in Kenya: The banking sector stability and fiscal risks nexus," KBA Centre for Research on Financial Markets and Policy Working Paper Series 80, Kenya Bankers Association (KBA).
    2. Samuel Kiemo & Anne Kamau, 2021. "Banking sector competition and intermediation efficiency in Kenya," African Development Review, African Development Bank, vol. 33(4), pages 648-661, December.
    3. Malgorzata Mikita, 2022. "The Interrelationship Among Efficiency and Concentration of Banking System and its Stability: Evidence from Poland," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 670-689.
    4. Kiemo, Samuel & Talam, Camilla & Rugiri, Irene W., 2022. "Bank capital, credit risk and financial stability in Kenya," KBA Centre for Research on Financial Markets and Policy Working Paper Series 57, Kenya Bankers Association (KBA).

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    More about this item

    Keywords

    Bank Stability; Consolidation; Competition; Market Power; Lerner Index; Altman Z-Score; Bankometer S-Score; H-statistics.;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G01 - Financial Economics - - General - - - Financial Crises
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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