Down-scaling of Credit Risk Policies as a Strategic Choice to Gaining Competitive Advantage for NIC Bank Ltd in the SME Sector in Kenya

Abstract

The objective of the study was to investigate whether the 2007-2010 global financial crisis had an effect on returns of listed commercial banks in Kenya. The research design was a correlation study with the population of the study consisting of all the 44 commercial banks currently licensed by the Central Bank of Kenya and was operational between January 1st 2004 and December 31st 2010. The sample consisted of nine commercial banks which were listed between the years 2004-2010. Secondary data for the period was collected from NSE data bank. Purposive sampling of companies quoted on the NSE during the period 2004-2010 was used. Further, firms which were listed in the course of the period were not included in the sample as there data was found not to be consistent with the study period. The study used regression model of analysis with Wednesdays stock prices of the three years before the 2007-2010 and 3 years during the crisis. The regression model was then used to make predictions of what would have been the returns in case the crisis had never occurred. These projected returns were compared with the actual returns for the period during and before the crisis. It was observed that there was a significant increase in stock returns during the crisis compared to the projected returns. Analysis of the data revealed that there were generally weak relationship between the global financial crisis and the returns of the listed commercial banks due to weak coefficients of determination therefore it can be concluded that the global financial crisis had no effect on the returns of listed commercial banks and the increase can be attributed to other factors specific to each organization. However, the study recommends that a study of similar nature be carried out to investigate information about the nature of reactions by depositors and loan holders in the banking industry.