Effect Of Banking Regulations On Commercial Banks’ Credit Availability In Kenya

Abstract

Banks perform various functions and one of these functions is the bank credit. Bank credit is very vital because it provides funding for various sectors in the economy hence contributing to the development of the economy. This study aimed at determining the effect of banking regulations on commercial banks credit availability in Kenya. To investigate the effect of capital requirement regulation on credit availability by commercial banks in Kenya, to examine the effect of interest rate regulation on credit availability by commercial banks in Kenya and to determine the effect of liquidity regulation ratio on credit availability by commercial banks in Kenya. The following theories provided guidance to the study; agency theory, signalling theory and financial information theory. Under this study descriptive research design was adopted in analysing the effect of banking regulations on commercial banks credit availability in Kenya. Descriptive research acts as a forerunner to quantitative research designs with the general provision on some guidelines on the variables that need to be tested quantitatively. The target population were all the 43 commercial banks that have been operating in Kenya for the last 5 years that is from 2012 to 2016 as provided in the CBK list of 2016. The study used census method of sampling and sampled all 43 commercial banks in Kenya. A census provides a study of the whole population and it’s sometimes referred to as absolute enumeration or absolute count. In the current study, published literature and financial reports formed secondary source of data collection for capital requirement, interest rates, liquidity and credit availability of commercial banks in Kenya for the study period, 2012 to 2016. Descriptive statistics was used in the analysis of the data collected. The use of descriptive statistics helped in data presentation and organization. The techniques include use of tabulation, diagrams and graphs; the quantitative data was analysed using the SPSS software. Based on the results, the study revealed that increasing capital regulation results to a positive increase in credit availability, thus the study concludes that capital requirement regulation had positive influence on credit availability by commercial banks in Kenya. On interest rate, the study found that interest rate regulation have positive influence on credit availability by commercial banks in Kenya. The research revealed a strong positive correlation between liquidity regulation and credit availability. The study noted that enforcing liquidity regulation ratio can lead to credit availability by commercial banks in Kenya; hence the study infers that standard liquidity regulation ratio has positive influence on credit availability by commercial banks in Kenya. The study recommends that reforms on the capital regulation should be strengthened to encourage more enhanced competition within the banking industry with an aim of boosting credit availability. On the other hand, it is advisable for the policymakers and the Government to draw better interest rate policies that will enhance the performance of commercial Banks in Kenya.