The Effect of Savings in Commercial Banks on Kenya’s Economic Growth

Abstract

Countries with higher savings rates experience faster economic growth than those with lower savings rates. By supplying a second source of income, capital accumulation gives a country more opportunities for output and productivity. The most crucial factor in increasing in-country capital is domestic savings growth, hence rising nations should prioritize encouraging domestic savings in order for capital to be invested in the most productive businesses. Governments must therefore pursue a number of policies, such as promoting savings, enhancing investment, and increasing domestic output, in order to accomplish economic development. The purpose of the study was to ascertain how savings in commercial banks affected Kenya's economic expansion. The research was impacted by the dependence ratio, marginal propensity to save, and the Harrod-Domar growth theories. The study only used secondary data sources, and the data it gathered were time series data. Inferential statistics, including correlation and multiple linear regression analysis, were used in the study. A causal research design was employed in the study. The study only used secondary data sources, and the data it gathered was time series data. The study used multiple linear regression and correlation inferential statistics. Further findings were that the model entailing; savings, FDI, GCF, exchange rate fluctuations, and prevailing interest rates significantly predicts Kenya’s economic growth. The final findings were that savings, FDI, GCF, exchange rate fluctuations, and prevailing interest rates each individually do not have a substantial impact on economic growth. Although savings and FDI are the sources of capital for investments and nations with low national savings rates are more dependent on FDI, policy recommendations are made to government officials, policy makers in the Treasury, as well as legislators, not to primarily focus on savings and FDI to spur economic growth. It is advised that policymakers take into account all factors influencing economic growth rather than concentrating only on savings and foreign direct investment. Managers and consultants of financial institutions are advised to source various non-deposit liabilities in addition to relying on deposits as their primary source of funding in order to get funds to lend to the private and public sectors. However, they might also look for alternative non-deposit liabilities to get capital to lend to the public and private sectors in order to improve their financial performance. Savings have no direct impact on economic growth, thus they will also not affect how well financial institutions function in the long run. Finally, suggestions are made to the general public on how to promote economic growth other than merely boosting savings rates.