Market Structure, Macroeconomic Shocks, and Banking Risk in Kenya
This paper investigates the effect of changing market structure and macroeconomic shocks on the borrowing and lending risk exposure of Kenyan commercial banks using a GMM estimation approach. Borrowing risk exposure was found not to be persistent, being mainly affected by the degree of concentration...
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| Format: | Article |
| Language: | English |
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SGH Warsaw School of Economics, Collegium of Economic Analysis
2016-11-01
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| Series: | Econometric Research in Finance |
| Online Access: | https://erfin.org/journal/index.php/erfin/article/view/6 |
| _version_ | 1819030372628824064 |
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| author | Nderitu Kingori |
| author_facet | Nderitu Kingori |
| author_sort | Nderitu Kingori |
| collection | DOAJ |
| description | This paper investigates the effect of changing market structure and macroeconomic shocks on the borrowing and lending risk exposure of Kenyan commercial banks using a GMM estimation approach. Borrowing risk exposure was found not to be persistent, being mainly affected by the degree of concentration and external economic shocks. Interestingly, the results also suggest that changes in the short-term interest rate do not affect the net interest margin, which may imply that bank deposit and lending rates are rigid and that the interest rate channel may be ineffective. The lending risk exposure was found to be persistent, and it was affected by the degree of concentration, internal economic shocks, and external economic shocks. The positive relationship between degree of concentration as well as borrowing and lending risk exposure supports the concentration-fragility view, as the declining franchise value did not lower incentives for making good loans during the study period where the degree of concentration was on a downward trend. Further analysis of the factors contributing to the persistence of lending risk exposure using a PVAR model found that the banks' loan growth rate and the market interest rate were key determinants. The effect of the loan growth rate was about double the effect of interest rate risk, implying that risk taking by some of the medium-sized and small banks is the key determinant of the persistence of lending risk exposure. |
| first_indexed | 2024-12-21T06:29:07Z |
| format | Article |
| id | doaj.art-7655f52025b94b108cc61c7386b31dcb |
| institution | Directory Open Access Journal |
| issn | 2451-1935 2451-2370 |
| language | English |
| last_indexed | 2024-12-21T06:29:07Z |
| publishDate | 2016-11-01 |
| publisher | SGH Warsaw School of Economics, Collegium of Economic Analysis |
| record_format | Article |
| series | Econometric Research in Finance |
| spelling | doaj.art-7655f52025b94b108cc61c7386b31dcb2022-12-21T19:13:02ZengSGH Warsaw School of Economics, Collegium of Economic AnalysisEconometric Research in Finance2451-19352451-23702016-11-01128111310.33119/ERFIN.2016.1.2.26Market Structure, Macroeconomic Shocks, and Banking Risk in KenyaNderitu Kingori0University of NairobiThis paper investigates the effect of changing market structure and macroeconomic shocks on the borrowing and lending risk exposure of Kenyan commercial banks using a GMM estimation approach. Borrowing risk exposure was found not to be persistent, being mainly affected by the degree of concentration and external economic shocks. Interestingly, the results also suggest that changes in the short-term interest rate do not affect the net interest margin, which may imply that bank deposit and lending rates are rigid and that the interest rate channel may be ineffective. The lending risk exposure was found to be persistent, and it was affected by the degree of concentration, internal economic shocks, and external economic shocks. The positive relationship between degree of concentration as well as borrowing and lending risk exposure supports the concentration-fragility view, as the declining franchise value did not lower incentives for making good loans during the study period where the degree of concentration was on a downward trend. Further analysis of the factors contributing to the persistence of lending risk exposure using a PVAR model found that the banks' loan growth rate and the market interest rate were key determinants. The effect of the loan growth rate was about double the effect of interest rate risk, implying that risk taking by some of the medium-sized and small banks is the key determinant of the persistence of lending risk exposure.https://erfin.org/journal/index.php/erfin/article/view/6 |
| spellingShingle | Nderitu Kingori Market Structure, Macroeconomic Shocks, and Banking Risk in Kenya Econometric Research in Finance |
| title | Market Structure, Macroeconomic Shocks, and Banking Risk in Kenya |
| title_full | Market Structure, Macroeconomic Shocks, and Banking Risk in Kenya |
| title_fullStr | Market Structure, Macroeconomic Shocks, and Banking Risk in Kenya |
| title_full_unstemmed | Market Structure, Macroeconomic Shocks, and Banking Risk in Kenya |
| title_short | Market Structure, Macroeconomic Shocks, and Banking Risk in Kenya |
| title_sort | market structure macroeconomic shocks and banking risk in kenya |
| url | https://erfin.org/journal/index.php/erfin/article/view/6 |
| work_keys_str_mv | AT nderitukingori marketstructuremacroeconomicshocksandbankingriskinkenya |