The effect of Basel II requirement on Kenyan commercial banks' lending
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Date
2013Author
Waithaka, Nelly N
Type
ArticleLanguage
enMetadata
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Since 1999 the Basel Committee on Banking Supervision has been working on a revised
Capital Accord, which should align regulatory capital requirements with the actual risk
associated with banks' assets calculated with modern risk management techniques. The
new Accord will increase regulatory capital for lower rating classes and, as a
consequence, many observers feared that bank lending would decline (Taylor, 2006). The
aim of this paper was to investigate this claim bringing to bear a new and comprehensive
dataset of Kenyan bank lending. The study adopted descriptive study design. The
populations for this research are the 43 listed Commercial Banks in Kenya analyzed for a
period from 2009-2012. The study found that commercial banks risk weighted assed had
increased by 79% over the years indicating a similar growth in bank's assets. To meet the
asset growth, core capital also increased by 88% with bank's undertaking rights issue
between 2011 and 2012 in order to meet the new capital requirements with Basel II. Total
loans and advances with a risk weight of 100% also increased by 77% from the year 2009
to 2012. The CAMEL rating also showed continuous growth in all the key ratios over the
years under review. The study concludes that Basel II requirement has an impact on
banks' capital requirement and asset growth with growth in core capital and risk
weighted assets clearly seen over the years. The risk weighted assets growth declined
from 26% between 2008 and 2009 to 15% between 2011 and 2012 indicating strained
growth on banks assets with implementation of Basel II. The study concludes that Basel
II requirement has a clear impact on banks' lending. None of the commercial banks so far
is in breach of the minimum capital requirements of 8% as additional capital has being
raised through rights issues however further studies need to be done to determine the
sustainability of uptake of rights issues to meet capital requirements.
Citation
Degree Of Master Of Science In Finance,Publisher
University of Nairobi,