Effects of the global financial crisis in the Banking industry in Kenya
The objective of this study was to determine the effect of the global financial crisis on commercial banks in Kenya. The current study expected to establish how Kenyan banks prepared, dealt and saw themselves through the crisis which climaxed in 2008/09 financial year. This study therefore adds to new knowledge on how commercial banks in emerging economies of Africa such as Kenya dealt with the crisis. The study employed a cross sectional survey design. The target population of this study was all the 43 commercial banks in Kenya which included both locally owned and those that are subsidiaries of foreign multinationals (CBK, 2011). Due to the size of population, the researcher carried out a census hence each bank had a subject who was the source of information required. In this study a semi-structured questionnaire and an interview were used to gather primary data from senior managers of the targeted commercial banks responsible for risk management. Data collected was both qualitative and quantitative in nature. Qualitative data was collected through semi structured interviews with the selected respondents. This data was manipulated through thematic summary analysis that depicted what the main theme and direction of responses was. Quantitative data was collected through questionnaires. This data was manipulated through descriptive statistics such as means, percentages and frequencies. This data was presented in tables and graphs. Findings indicate that although the crisis started out in 2008, Kenya experienced a lagged effect and started to face significant consequences later on. The measures deployed to withstand the crisis were oriented towards a combined strategy of increasing liquidity and investing in stocks and fixed income securities. Interestingly, even during the crisis, Kenyan banks diversified both their product offering and regional reach in terms of branch network. Further, the banks seemed not to have been affected by the crunch in their operations since vi their recruitment, expansion and profitability improved. Results further indicate that the Kenyan commercial banking sector resisted quite successfully to the effects of the Global Financial crisis. While Kenya’s banking system withstood the crisis, the Nairobi Stock Exchange was adversely affected and foreign direct investment and remittances seemed to have slumped. The following recommendations are made. In order to cushion financial systems from crisis, it is important to ensure that financial sectors of Africa are regulated effectively to spurt their growth and prevent them from collapse instigated by phenomena such as the global financial crisis. The Kenyan sector was spared the negative effects of the global financial crisis due to the recent deep reforms that have been implemented in the sector. In order to strengthen the financial sector regulation, governments should establish financial sector reforms that enhance competition, while enforcing mechanisms that minimize exposures to risky foreign currency borrowing. Capital requirements for banks should also be revamped, since the size of a bank was seen as factor to minimize risk of being affected by offshore forces. Banks also should ensure that they practice good corporate governance and follow sound prudential guidelines to ensure longevity of operations and safeguard of shareholder resources. Customer satisfaction and confidence is also an important factor in stability and growth of a financial system. Ensuring that customers have faith in a financial institution gives the institution a lifeline even in terms of chaos. Lastly, financial systems in emerging economies should learn a lesson against over-reliance on investments and capital from developed economies. This over-reliance makes these institutions over dependent and can be the death knell in times of crisis.