Market Structure, Macroeconomic Shocks, and Banking Risk in Kenya

Nderitu Kingori

Econometric Research in Finance, 2016, vol. 1, issue 2, 81-113

Abstract: This paper investigates the effect of changing market structure and macroeconomic shocks on the borrowing and lending risk exposure of Kenyan commercial banks using a GMM estimation approach. Borrowing risk exposure was found not to be persistent, being mainly affected by the degree of concentration and external economic shocks. Interestingly, the results also suggest that changes in the short-term interest rate do not affect the net interest margin, which may imply that bank deposit and lending rates are rigid and that the interest rate channel may be ineffective. The lending risk exposure was found to be persistent, and it was affected by the degree of concentration, internal economic shocks, and external economic shocks. The positive relationship between degree of concentration as well as borrowing and lending risk exposure supports the concentration-fragility view, as the declining franchise value did not lower incentives for making good loans during the study period where the degree of concentration was on a downward trend. Further analysis of the factors contributing to the persistence of lending risk exposure using a PVAR model found that the banks' loan growth rate and the market interest rate were key determinants. The effect of the loan growth rate was about double the effect of interest rate risk, implying that risk taking by some of the medium-sized and small banks is the key determinant of the persistence of lending risk exposure.

Keywords: market structure; macroeconomic shocks; macro-financial linkages; banking risk; dynamic panel data; Kenyan banks (search for similar items in EconPapers)
JEL-codes: C23 E02 G21 G31 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://erfin.org/journal/index.php/erfin/article/view/6 Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sgh:erfinj:v:1:y:2016:i:2:p:81-113

DOI: 10.33119/ERFIN.2016.1.2.2

Access Statistics for this article

Econometric Research in Finance is currently edited by Dobromił Serwa and Piotr Wdowiński

More articles in Econometric Research in Finance from SGH Warsaw School of Economics, Collegium of Economic Analysis Contact information at EDIRC.
Bibliographic data for series maintained by Dobromił Serwa (dserwa@sgh.waw.pl).