Financial Deepening and Profitability of Commercial Banks in Kenya
Abstract
The link between financial deepening and economic growth has long received significant attention in
economics, however, the waves of financial deepening cannot raise the tide of the economy without
affecting bank profitability; it is against this background that this study was formulated to examine the
effects of financial deepening on profitability of commercial banks in Kenya. The study targeted all the
commercial banks in Kenya. Secondary data was collected from the Kenya National Bureau of Statistics,
Central Bank of Kenya and websites of licensed Commercial banks in Kenya. The study used both
explanatory research design and inferential statistics to investigate the effect of financial deepening on
profitability of commercial banks. The findings of the study revealed that financial deepening affects bank
profitability positively. The results of this paper therefore, present a strong argument towards increasing
financial deepening as an important stimulator of greater banking profitability. While Kenya still exhibits
relatively low levels of financial deepening, commercial banks profitability displays an increasing trend in
recent years. An expansion of credit to the private sector may be an important determinant of further
banking profitability increases in the future. Therefore, policy oriented measures in the country should take
in consideration the positive causality between financial deepening and banking profitability change and
try to increase the level of credit to the private sector as a stimulant of economic growth.
Publisher
School of Business