Financial Crises and Economic Downturns of Commercial Banks in North Rift Region, Kenya
DOI:
https://doi.org/10.47941/ijf.1904Keywords:
Interest Rates Crisis, Currency Crisis, Corporate Debt Crisis, Liquidity Crisis, Economic DownturnsAbstract
Purpose: General objective of the study was to explore the financial crises and economic downturn of commercial banks in North Rift Region in Kenya. The study specifically sought to establish the effects of interest rates crisis, currency crisis, corporate debt crisis and liquidity crisis on economic downturns of commercial banks in North Rift Region in Kenya. The study was anchored on Credit Crunch Theory, the Debt Overhang Theory, the Liquidity Preference Theory and the Credit cycle Theory.
Methodology: A descriptive survey design was adopted. The study population consisted of all the 44 commercial banks in the North rift region in Kenya and in each commercial bank, branch managers were also targeted who gave a clear overview of financial crises and how it affected the economic downturns of their respective banks. Purposive sampling was employed to select the 44 branch managers. The primary data was collected by using a questionnaire that was pretested for reliability and validity. The study also analyzed the data using both descriptive and inferential statistics. Descriptive statistics including percentages, frequencies, means and standard deviations were adopted in analyzing the data. Linear Regression analysis and correlation analysis as the inferential statistics were used to show the relationship that existed between the variables. The findings were then presented using tables.
Findings: The study findings indicated that interest rates crisis had a significant negative effect on the economic downturns of commercial banks (p = 0.027, <0.05). The findings also indicated that currency crisis had a significant negative effect on the economic downturns of commercial banks with p = 0.033, <0.05. corporate debt crisis had a significant negative effect on the economic downturns of commercial banks (p = 0.015, <0.05). Liquidity crisis had a significant negative effect on economic downturns of commercial banks where the regression model also indicated that p = 0.002, <0.05. The study concluded that interest rates crisis, currency crisis, corporate debt crisis and liquidity crisis had a negative effect on the economic downturns of commercial banks.
Unique contribution to theory, practice and policy: The study recommends that the commercial banks should develop products with flexible interest rates to cater to borrowers during periods of high interest rates. The management should consider offering fixed-rate loans for a limited term to provide some stability to businesses. The policy makers such as the Central Bank of Kenya should implement measures to stabilize the national currency and promote foreign investment during crises.
Downloads
References
Abbas, A., A. Pienkowski, and K. Rogoff. (2019). Sovereign Debt: A Guide for Economists and Practitioners. New York: Oxford University Press.
Abdushukurov, N. (2019). The impact of currency crises on economic growth and foreign direct investment: The analysis of emerging and developing economies. Russian Journal of Economics 5(3), 220-250.
African Development Bank. (2011). Financial Crises in Africa: Lessons from the Past and Challenges for the Future. African Development Bank.
Almahmood, H., Bird, G. and Willet, T. (2021). The relationship between currency crises and capital flow reversals. An empirical examination. International Review of Economics and Finance. 69(6), 419-434
Ani, W. U., Ugwunta D. O., & Okanya, O. (2013). The Effect of Foreign Exchange Reforms on Financial Deepening: Evidence from Nigeria. International Journal of Business and Commerce, 2(3), 204-209.
Baum, C. F., Schaafer, D., & Talavera, O. (2016). The Effects of Short-Term Liabilities on Profitability: The Case of Germany. Berlin: Boston College.
Blanchard, O. 2019. "Public Debt and Low Interest Rates." American Economic Review 109 (4): 1197-1229.
Central Bank of Kenya (2018). Financial Stability Report.
Central Bank of Kenya (CBK). (2022). Financial Stability Report 2022.
Cernohorska, L. (2016). Impact of Financial Crisis on the Stability Banking Sectors in the Czech Republic and Great Britain. Procedia Economics and Finance 26 (2) 234 - 241.
Chechet, I. L., & Olayiwola, A. B. (2015). Capital Structure and Profitability of Nigerian Quoted Firms: The Agency Cost Theory Perspective. American International Journal of Social Science, 3(1), 139-158.
Chen, W. Chen, Y. and Huang, S. (2020). Liquidity risk and bank performance during financial crises using US banks data from 1996 to 2013. Journal of financial stability 56(3), 60-74.
Dimitropoulos, P.E., Asteriou, D. & Koumanakos, E. (2016). The relevance of earnings and cash flows in a heavily regulated industry: Evidence from the Greek Banking Sector, Journal in Advances in Accounting, 26 (2), 290-303.
Fosu, A. K. (2016). "˜The Impact of External Debt on Economic Growth in Sub-Saharan Africa.' Journal of Economic Development, 12 (1).
Furceri, D., and Zdzienicka, A. (2012). "How Costly are Debt Crises?" Journal of International Money and Finance 31 (4): 726-742.
Hack, M. and Nicholls, S. (2018). Financial Stability Low Interest Rates and Bank Profitability - The International Experience So Far. Journal of Financial Intermediation, 2018, vol. 35, issue PA, pp 1-16.
Ho, K. Y., & Tsui, A. K. C. (2013). Asymmetric Volatility of Real GDP: Some evidence from Canada, Japan, the United Kingdom and the United States, Japan and the World Economy 15, 437-445.
International Monetary Fund (2009). The Impact of the Global Financial Crisis on Africa.
International Monetary Fund (2023). Kenya: Staff Report for the 2022 Article IV Consultation.
International Monetary Fund (2023). The Global Financial Crisis: Ten Years On.
International Monetary Fund (IMF). (2022). Kenya: Selected Issues Paper.
International Monetary Fund. (2019). Financial Crises in Africa: A Review of the Literature. International Monetary Fund.
International Monetary Fund. (2022). COVID-19 and the Financial Sector: A Review of the Literature. 2022.
Kose, M. A., P. Nagle, F. Ohnsorge and N. Sugawara. (2019). Global Waves of Debt." World Bank, Washington, DC
Krugman, P. (2009). The Return of Depression Economics and the Crisis of 2008. W.W. Norton & Company, 2009.
Massa, I. (2015). The impact of the global financial crisis: What does this tell us about state capacity and political incentives to respond to shocks and manage risks?. Washington, DC: Congressional Research Service.
Muchugia, L. (2014). Effect of debt financing on firm profitability, a case commercial bank in Kenya. African Journal of Accounting, Economics, Finance and Banking Research 4.(4), 40-54.
Ngugi, R.W., 2019). An Empirical Analysis of Interest Rate Spread in Kenya. African Economic Research Consortium, Research Paper 106
Ngure, F. (2019) investigated the effect of interest rates capping on the foreign exchange rate in Kenya. International Journal of Academic Research in Accounting, Finance and Management Sciences, 6 (2), 121 - 133.
Njagi, M. M., & Nzai, C. (2022). Effect of Exchange Rate Volatility on Performance of Commercial Banks in East Africa Community. Journal of Economics, 2(2), 1-13.
Odhiambo, F. (2019) Effects of interest rate capping on performance of commercial banks in Kenya. International Journal of Economics and Financial Issues, 3(1), 237-52.
Omotende E.G (2013), Credit Appraisal in Developing Countries, IMF Publication, March. Reed, Commercial Banking, Prentice-Hall Inc. New Jersey.
Pavek, J.E (2017) "The Impact Of Interest Rates Vs. Economic Growth On The Performance Of Commercial Banks - An Empirical Analysis Of Commercial Banks In The U.s." (2017). Theses and Dissertations. 2135.
Shikumo, D., Oluoch.O. and Matanda, J. (2020). Effect of Long-Term Debt on the Financial Growth of Non-Financial Firms Listed at the Nairobi Securities Exchange. OSR Journal of Economics and Finance (IOSR-JEF. 11(5) Ser. II (Sep. -Oct. 2020), PP 01-09
Shuremo, G.A, (2016) Determinants of banks' profitability: Evidence from banking history in Ethiopia. International Journal of Economics, Commerce and Management, Vol IV (2), 442-463.
Waweru, H. (2023). The Kenyan Government Facing an Economic Crisis- Root Cause Analysis, Repercussions and Mitigants
Wolf, M. (2020). The Financial Crisis of 2020: Lessons Learned from the Past. Penguin Books.
Wolff, G. (2014). Europe's Debt Crisis: A Short History. Oxford University Press, 2014.
World Bank (2018). The effects of interest rates caps on the financial sector, evidence from the commercial banks in Kenya.
World Bank (2020). Africa's Pulse: Economic Analysis of Sub-Saharan Africa.
World Bank (2020). Kenya Economic Update: Navigating the COVID-19 Crisis.
World Bank (2021). Global Financial Stability Report.
World Bank. (2023). Kenya Economic Update: The Road to Resilience.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Benard Agwata Onchwari, Dr. Julius Miroga
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
