Advertisement

The Kenyan Banking Industry: Challenges and Sustainability

  • Samuel Muiruri Muriithi
  • Lynette Louw
Chapter
Part of the Palgrave Studies of Sustainable Business in Africa book series (PSSBA)

Abstract

The banking industry is a major driver of economic development for world economies. By offering different types of services, such as facilitating money transfers between countries and ensuring that savers and borrowers are brought together in well-organised structures, the industry determines countries’ economic development and long-term sustainability. Although critical to world economic stability, the last six decades have seen the industry experience severe financial challenges which have negatively affected economic performance of most countries. The main causes of financial crises have been non-performing loans, political interference, uncertain global financial trends and poor leadership. The Kenyan banking industry is considered the most mature, fastest-growing and largest in East Africa, thereby making it the regional financial leader. The industry has, however, been a victim of both global and domestic financial challenges. Between 1980 and 2000, the country’s financial industry was characterised by major financial upheavals that led to the collapse of many banks, while others were in and out of receivership. The crises were attributed to non-performing loans, weak internal control mechanisms, poor governance and poor leadership. Since the year 2000, the government has instituted tough measures to revive the industry, which have resulted in stability. As such, the industry has experienced positive and encouraging growth, contributing towards making the sector the financial hub of the East Africa region. Despite recent gains, however, the industry still faces challenges of corruption, inability to reach the majority of the rural population, fragmentation and ineffective leadership. This chapter explores the importance of enhancing and strengthening the banking internal control mechanisms and developing sustainability strategies, focusing on business practices and product development geared towards healthy economic, social and environmental activities.

References

  1. Adeyemi, K.S. (2007, June). Banking sector consolidation in Nigeria issues and challenges. Union Digest, 9, 3–4.Google Scholar
  2. Ambutsi, P. B. (2005). A survey of corporate governance practices in selected commercial banks in Kenya. Unpublished MBA thesis. Nairobi: Daystar University, Faculty of Post Graduate Studies.Google Scholar
  3. Batino, C. S. (2001, June 25). Government vows tighter money-laundering laws. Philippine Inquirer.Google Scholar
  4. Beck, T., Demirgüç-Kunt, A., & Levine, R. (2009). Financial institutions and markets across countries and over time: Data and analysis (World Bank Policy Research Working Paper 4943). Washington, DC: World Bank.CrossRefGoogle Scholar
  5. Brannigan, M. & de Lisser, E. (1993, July 8). The end of banking as we know it … changing climate: Two big rival banks in southeast take on new age competitors. Wall Street Journal, A1, 1–4.Google Scholar
  6. Brownbridge, M. (1998). Financial distress in local banks in Kenya, Nigeria, Uganda and Zambia: Causes and implications for regulatory policy. Development Policy Review, 16(2), 173–188.CrossRefGoogle Scholar
  7. Central Bank of Kenya. (1994). Annual report. Nairobi: Central Bank of Kenya.Google Scholar
  8. Central Bank of Kenya. (1999). Reforming Kenya’s financial. Monthly Economic Review. Nairobi: Central Bank of Kenya (CBK).Google Scholar
  9. Central Bank of Kenya. (2001). Bank supervision annual report. Nairobi: Central Bank of Kenya.Google Scholar
  10. Central Bank of Kenya. (2003). Monthly economic review. Nairobi: Central Bank of Kenya.Google Scholar
  11. Central Bank of Kenya. (2004). Kenya monthly economic review. Nairobi: Central Bank of Kenya.Google Scholar
  12. Central Bank of Kenya. (2008). Bank supervision annual report. Nairobi: Central Bank of Kenya. Retrieved on February 24, 2010 from: http://www.centralbank.go.ke
  13. Central Bank of Kenya. (2010). Kenya monthly economic review. Nairobi: Central Bank of Kenya. Retrieved on March 20, 2010, from http://www.ouhk.edu.hk/ PAU/AlumniLink/Alumni Talk/040828/speech_ marvincheung.pdf
  14. Central Bank of Kenya. (2011). Financial sector development. Nairobi: Central Bank Of Kenya Annual Report.Google Scholar
  15. Central Bank of Kenya. (2012). Bank supervision annual report 2012. Nairobi: Central bank of Kenya. Retrieved on August 13, 2010, from http://www.centralbank.go.ke/images/docs/Bank%20Supervision%20Reports/Annual%20Reports/bsd2012-r.pdf
  16. Central Bank of Kenya. (2013). Economic update. Nairobi: Central Bank of Kenya Retrieved on April 24, 2010, from http://www.centralbank.go.ke
  17. Central Bank of Kenya. (2014). Bank supervision annual report 2014. Nairobi: Central bank of Kenya.Google Scholar
  18. CIA World Factbook (2007). Kenya economy 2007. Retrieved on October 30, 2016, from http://www.allcountries.org/wfb/2007/kenya/kenya_economy.html
  19. Deloitte. (2012). Global powers of consumer products industry 2012. London, UK: Deloitte Global Service Limited.Google Scholar
  20. Donnelly, J. H. (1994). Reframing the mind of the banker: The changing skill set and skills mix for effective leadership. International Journal of Bank Marketing, 12(8):12-16 . Retrieved on February 8, 2010, from http://www.emeraldinsight.com/Insight/viewPDF.jsp?contentType=Article&filename=html/Output/Published/EmeraldFullTextArticle/Pdf/0320120802.pdf CrossRefGoogle Scholar
  21. Economic Commission for Africa. (2011). Economic report of Africa 2011: Governing development in Africa – The role of the state in economic transformation. Addis Ababa: Africa Union.Google Scholar
  22. Economic Report on Africa. (2002). Kenya—Weak governance hobbles economy. Economic Report on Africa: Tracking Performance and Progress. Retrieved on February 24, 2010, from: http://www.uneca.org/era2002/chap5.pdf
  23. Elliot, R. (2008). In crisis, Canadian banks survive and thrive. Forbes.com. Retrieved on February 26, 2010, from: http://www.forbes.com/2008/12/11/Canada-banking-crisis-oped-cx_re_121elliott.html
  24. European Investment Bank. (2013). Banking in sub-Sahara Africa: Challenges and opportunities. Luxembourg: European Investment Bank.Google Scholar
  25. Fitzgibbon, C. (2012). Economics of resilience study: Kenya country report. Retrieved on April 30, 2014, from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/228500/TEERR_Kenya_Background_Report.pdf
  26. Fofack, H. (2005). Nonperforming loans in sub-Sahara Africa: Causal analysis and macroeconomic implication. World Bank Policy Research Working Paper 3769. WPS3769:2–36.Google Scholar
  27. Grant Thornton. (2013). 2013 banking outlook: Surviving and thriving in the new normal world of banking regulations. Chicago: Grant Thornton LLP.Google Scholar
  28. Gudmundsson, R., Ngoka-Kisinguh, K., & Odongo, M. T. (2013). The role of capital requirements on bank competition and stability: The case of the Kenyan banking industry. Nairobi: Kenya Bankers Association.Google Scholar
  29. Honohan, P., & Laeven, L. (Eds.). (2005). Systemic financial crises: Containment and resolution. Cambridge: Cambridge University Press.Google Scholar
  30. Hoyle, K., & Whitehead, G. (1982). Money and banking. London: William Heinemann Ltd.Google Scholar
  31. International Finance Corporation. (n.d). Banking on sustainability financing environmental and social opportunities in emerging markets. Retrieved on March 14, 2016, from http://www.ifc.org/wps/wcm/connect/9486d980488658f8b7b2f76a6515bb18/Banking_on_Sustainablity_Launch.pdf?MOD= AJPERES&CACHEID=9486d980488658f8b7b2f76a6515bb18
  32. International Monetary Fund (IMF). (1998). Code of practices on fiscal transparency: Declaration on principles. Washington, DC: International Monetary Fund.Google Scholar
  33. International Monetary Fund (IMF). (2009). Regional economic outlook: Sub-Sahara Africa. Washington, DC: International monetary fund (IMF). Retrieved on June 15, 2012, from http://www.inf.org/external/pubs/ft/reo/2009/afr/eng/sreo0409.pdf
  34. Kaplan, A. J. (2012). Banking on leaders. Retrieved on August 12, 2014, from http://www.kasearch.com/Articles/ICBA%20Banking%20on%20Leaders%20Article%202012.pdf
  35. Kashyap, A. K., Rajan, R., & Stein, J. C. (2002). Banks as liquidity providers: An explanation for the coexistence of lending and deposit-taking. Journal of Finance, American Finance Association, 57(1), 33–73.Google Scholar
  36. Kenya Institute For Public Policy Research and Analysis (KIPPRA). (2009). Kenya economic report 2009. Nairobi: KIPPRA.Google Scholar
  37. Kenyan Magazines Online. (2011). James Mwangi – Equity bank CEO – Managing Generation Y – Leading a young workforce. Retrieved on June 20, 2011, from http://www.kenyanmagazines.com/james-mwangi-equity-bank-ceo-managing-generation-leading-young-workforce-management-march-2011/
  38. Kinyua, J. (2006). Exploration of factors influencing fraudulent activities in banks in Kenya. Unpublished master’s thesis, Nairobi: Daystar University, Faculty of post graduate studies.Google Scholar
  39. Kithinji, A., & Waweru, N. M. (2007). Merger restructuring and financial performance of commercial banks in Kenya. Economic, Management and Financial Markets Journal, 2(4), 9–39.Google Scholar
  40. Kroszner, P. (2002). Nonperforming loans, monetary policy and deflation: The industrial country experience. Economic and social research institute. Tokyo: Cabinet office, Government of Japan.Google Scholar
  41. Kumbirai, M., & Webb, R. (2010). A financial ratio analysis of commercial bank performance in South Africa. African Review of Economics and Finance, 2(1), 30–53.Google Scholar
  42. Meechan, J. (1992). America’s bumbling bankers: Ripe for another fiasco. Business Week, 2(March), 86–87.Google Scholar
  43. Nagar, N., Masih, E., & Badugu, D. (2011). Retail banking: The new buzzword of today’s world of banking. Journal of Banking Financial Services and Insurance Research, 1(8), 1–10.Google Scholar
  44. Ngugi, R. (2001). An empirical analysis of interest rate spread in Kenya. AERC Research Paper 106, African Economic Research Consortium. Nairobi: African Economic Research Consortium (AERC). Google Scholar
  45. Njuguna, N. (2013). The importance of the banking sector in the Kenyan economy. Nairobi: Speech at the Bank of India, Kenya Branch, Diamond Jubilee Celebrations.Google Scholar
  46. PricewaterhouseCooper. (2012). Go green. Stay competitive: Sustainability for banks. Retrieved on March 13, 2016, from www.pwcsustainability.lu
  47. Russo, M., & Ugolini, P. (2008). Emerging markets forum. Washington, DC: Centennial Group.Google Scholar
  48. Sokpor, C. K. D. (2006). The role of central bank of Kenya in controlling bank failures: An investigative study. Unpublished MBA thesis, Nairobi: Daystar University, Faculty of post graduate studies.Google Scholar
  49. Sultana, W. (2000). Banking crisis in Japan: Prediction of nonperforming loans. Retrieved on March 1, 2009, from: http://www.inq7.net/bus/2001jul/16/bus_5-1.htm
  50. Thorsten, B., Asli, D. & Ouarda, M. (2010). Islamic vs. conventional banking: business model, efficiency and stability (Policy Research Working Paper Series 5446). Washington, DC: The World Bank.Google Scholar
  51. Transparency International. (2014). Transparency international corruption perceptions index 2014. Berlin: Transparency International.Google Scholar
  52. United Nations. (2009). World economic situations and prospects (2009). New York: United Nations.Google Scholar
  53. United Nations Environment Programme Finance Initiative (UNEP FI). (2005). Sustainability banking in Africa. Paris: UNEP.Google Scholar
  54. United Nations Environment Programme Finance Initiative (UNEP FI). (2007). Banking on value: A new approach to credit risk in Africa. South Africa: University of South Africa Center for Corporate Citizenship (UNISA CCC).Google Scholar
  55. Wahome, M., (2004, March 20). Cooperative bank’s profit up seventy percent. Saturday Nation. Nairobi: Daily Nation Publishers.Google Scholar
  56. Waweru, N. M., & Kalani, M. V. (2009). Commercial banking crises in Kenya: Causes and remedies. African Journal of Accounting, Economics, Finance and Banking Research., 4(4), 12–32.Google Scholar

Copyright information

© The Author(s) 2017

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 2.5 International License (http://creativecommons.org/licenses/by-nc/2.5/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

The images or other third party material in this chapter are included in the chapter's Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the chapter's Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.

Authors and Affiliations

  • Samuel Muiruri Muriithi
    • 1
  • Lynette Louw
    • 2
  1. 1.School of Business and EconomicsDaystar UniversityNairobiKenya
  2. 2.Department of ManagementRhodes UniversityGrahamstownSouth Africa

Personalised recommendations