Access to Interbank Market Liquidity:Does Bank Concentration Matter?

Author(s)

Gilbert Kyongo Mutinda , Charles Ombuki , Josphat Mboya Kiweu ,

Download Full PDF Pages: 15-24 | Views: 616 | Downloads: 168 | DOI: 10.5281/zenodo.3948203

Volume 9 - June 2020 (06)

Abstract

Commercial bank’s access to liquidity is the fulcrum which guarantees their very continued survival and existence. However, some banks in Kenya experience difficulty getting sufficient liquidity from the interbank market to resolve their problems of liquidity which can lead to their reduced levels of profitability, freezing of giving loans to their borrowing customers, downsizing or even closure. This study adopted pragmatism philosophical approach to assess the effect that bank concentration has on access to interbank market liquidity in Kenya. The study was anchored on credit access theory, financial intermediation theory and lendable funds theory. The study collected secondary data from the top five commercial banks in terms of market share of total bank assets which operated in Kenya between 2009 and 2018. The data was obtained from the Central bank of Kenya annual bank supervision reports and from each of the 40 individual bank’s annual financial and balance sheet published reports. Data was analyzed using fixed multiple regression model. The findings of the study showed that bank concentration had a positive but insignificant influence on access to interbank market liquidity by commercial banks in Kenya .The study recommended that bank managers should thus endeavor to grow their banks market share for easy access to interbank market liquidity and that policymakers should put in place policies which encourage bank consolidation.

Keywords

Interbank market, Access to liquidity, Bank liquidity, Bank Concentration, Market power

References

 

                   i.            Afonso, G., Kovner, A., & Schoar, A. (2013). Trading partners in the interbank lending  market. FRB of New York Staff Report, (620).

      ii.            Alves I & Aldasoro I., (2016). Multiplex Interbank Networks and Systematic Importance, ECB Working paper 1962 pg. 15-27

    iii.            Allen, F. & Gale, D. (2004). Competition and Financial Stability. Journal of Money, Credit   and Banking, 36(3): pg. 453–480

     iv.            Alper C.E, Morales A., & Yang F., (2016). Monetary Policy Implementation and    Volatility Transmission along the Yield Curve: The Case of Kenya. IMF        Working paper WP/16/120, June

       v.            Assfaw, A. (2019). Firm Specific and Macroeconomic Determinants of Bank Liquidity: Empirical Investigation from Ethiopian Private Commercial Banks. Journal     of Accounting, Finance and Auditing Studies Vol. 5.2, Pg. 123-145.

     vi.            Bank of Tanzania (2017). Central bank of Tanzania Banking Report. Tech. rep.

   vii.            Bloomberg International (2018). Bloomberg.

 viii.            Bruche, M and Suarez J. (2010). Deposit insurance and money market freezes. Journal of Monetary Economics.

     ix.            Business Daily (2017). Business Daily. Nairobi

       x.            Bunda, I & Desquilbet (2008). Bank Liquidity Smile Across Exchange Rate Regimes, International Economic Journal Vol.22 Pg.361-386.

     xi.            Beck, T., Cull, R., Fuchs, M., Gentega, J., Gatere, P., Randa, J., & Trandafir, M. (2010).   BankingSector Stability, Efficiency, and Outreach in Kenya. World Bank      Policy Research Working Paper, 5442:1–40. 25                       

   xii.            Bhavani G.& Mehta A., (2017). What Determines Banks Profitability? Evidence from   Emerging Markets-The Case of UAE Banking Sector. Journal of Accounting      and Finance. Vol.6 Pg.77-87

 xiii.            Bibow, J. (1995). Some Reflections on Keynes’ ‘Finance Motive’ For the Demand for Money. Cambridge Journal of Economics, vol. 19, pp. 647-666.

 xiv.            Business Daily, Tuesday, 10th October, 2017, Kenya

   xv.            Bruche, M. & Suarez, J. (2010). Deposit Insurance and Money Market Freezes. Journal of Monetary Economics. 57:45-46.

 xvi.            Bräuning, F & Fecht, F (2016). Relationship Lending in the Interbank Market and the Price of Liquidity. Deutsche Bundesbank Discussion Paper, 22/2012

xvii.            Central bank of Kenya (2013). Risk Management Guidelines. Government printer, Kenya

xviii.            Craig, B., Fecht F., & Günseli Tümer-Alkan. (2015). The Role of Interbank Relationships   and Liquidity Needs. Journal of Banking and Finance 53:99–111.

 xix.            Central bank of Kenya Report (2009). Bank Supervision Division

   xx.            Central bank of Kenya Report (2010). Bank Supervision Division

 xxi.            Central bank of Kenya Report (2011). Bank Supervision Division

xxii.            Central bank of Kenya Report (2012). Bank Supervision Division

xxiii.            Central bank of Kenya Report (2013). Bank Supervision Division

xxiv.            Central bank of Kenya Report (2014). Bank Supervision Division

xxv.            Central bank of Kenya Report (2015). Bank Supervision Division

xxvi.            Central bank of Kenya Report (2016). Bank Supervision Division

xxvii.            Central bank of Kenya Report (2017). Bank Supervision Division

xxviii.            Central bank of Kenya Report (2018). Bank Supervision Division

xxix.            Cocco, J.F., Gomes F.J & Martins, N.C (2009). Lending Relationships in the Interbank      Market. Journal of Financial intermediation, Vol.18, Issue.1, pp. 24-48

xxx.            Daily Monitor, Friday, 20th January, (2017).

xxxi.            Diamond, D. W., & Dybvig, P. H. (1983). Bank runs, deposit insurance, and liquidity. Journal of Political Economy, 91(3), 401-419.

xxxii.            Diamond D & Rajan R (2005). Liquidity Shortages and Banking Crises: Journal of Finance, Vol.60.pg.615-647

xxxiii.            Dang, U (2011). The CAMEL rating system in banking supervision. A case Study. Journal of International Business.

xxxiv.            Daoud, J., N., Syazwan, Mohd Saifullah R., and M. M. (2017). Multicollinearity and Regression Analysis Related Content Modeling Governance KB with CATPCA to Overcome Multicollinearity in the Logistic Regression L Khikmah, H  Wijayanto and U D Syafitri-A Technique of Fuzzy C-Mean in Multiple Linear Regression Model, Journal of physics, p. 12009.Deb, MP (2016).

xxxv.            Market frictions, interbank linkages and excessive interconnections.

xxxvi.            Diamond, D. and P. Dybvig (1983). Bank Runs, Deposit Insurance, and Liquidity. Journal of Political Economy 91.3, pp. 401–419. ISSN: 0022-3808.

xxxvii.            Eichengreen, B., & Gupta, P. (2013). The Financial Crisis and Indian Banks: Survival of The Fittest? Journal of International Money and Finance, 39, 138–152.

xxxviii.            European Investment Bank (2013). European Investment Bank. Tech. rep. European Investment Bank.

xxxix.            Fama E. (1980). Banking in the Theory of Finance. Journal of Monetary Economics.

     xl.            Fecht, F., Nyborg G., & Rocholl J. (2011). The Price of Liquidity: Bank Characteristics and Market Conditions. Journal of Financial Economics Vol 102, Pg.344-          362

   xli.            Furfine, C. H. (2001). Banks as monitors of other banks: Evidence from the overnight federal funds market. The Journal of Business, 74(1), 33-57.

 xlii.            Green C., Bai Y., Murinde V., Ngoka K., Maana & Tiriongo S (2016). Overnight Interbank Markets and its Determination of the Interbank Rate: A Selective       Survey. Journal of International review of financial analysis vol. 44 pg. 149-161

xliii.            Gurley, J & Shaw, E. (1955). Financial Aspects of Economic Development. The  American Economic Review Vol. 45, pg. 215-224

xliv.            Horvath, R Seidler, J & Weill A. (2014). Bank Capital and Liquidity Creation: Granger-Causality Evidence. Journal of Financial Services Research vol.45 pg.341-361

 xlv.            Hryckiewicz A. & Kozlowski L. (2016). The Consequence of Liquidity Imbalance:   When Net Lenders Leave Interbank. Journal of International Political   Economy, Investment and Finance. Vol 47 Pg. 36-48

xlvi.            Kenya Financial Sector Stability Report (2017)

xlvii.            Kim K., (2014). A Price-Differentiation Model of the Interbank Market and Its Empirical Application. Department of Economics, Massachusetts Institute of Technology,    December.

xlviii.            Kiweu, J.M (2009). The critical success factors for commercializing microfinance institutions in Africa. PhD thesis. Stellenbosch.

xlix.            Lee, K. C., Lim, Y. H., Lingesh, T. M., Tan, S. Y., & Teoh, Y. S. (2013). The determinants influencing liquidity of Malaysia commercial banks and its            implication for relevant bodies: Evidence from 15 Malaysia commercial     banks (Doctoral dissertation, UTAR).

        l.            Leland, H.E & Pyle D.H (1977). Informational Asymmetries, Financial Structure and Financial Intermediation. The Journal of Finance, Vol.32 Pg.371-387

      li.            Leontitsis A., Koutelidakis Y., & Philippas D., (2015). Insights into European Interbank Market Network Contagion. Journal of Managerial Finance, Vol.41 Pg. 754-772

    lii.            Lovin, H. (2013). Determinants of Liquidity in the Romanian Interbank Deposits Market.,International Conference on Applied Economics, Procedia Economics and Finance Vol.5 Pg.512-518

  liii.            Murinde, V., Ye Bai, Maana, I., Kisinguh K.N., Green, C.J., &Tiriongo K.S. (2016). The Peer Monitoring Role of the Interbank Market in Kenya and Implications for Bank Regulation. Development Bank Paper Series no. 202.

   liv.            Moussa, B & Mohamed A (2015). The Determinants of Bank Liquidity: Case of Tunisia,International Journal of Economics and Financial Issues vol.5 pg.249-259

     lv.            Nikolaou, K (2009). Liquidity (risk) concepts: definitions and interactions. European Central Bank Working Paper Series no. 1008.

   lvi.            Osoro, J & Muriithi, D. (2016). The Interbank Market in Kenya: An Event –Based Stress    Analysis Based on Treasury bill Market. European Scientific Journal,    Vol.Pg 127      145.

 lvii.            Ongore, O. V. & Kusa, G. B. (2013). Determinants of Financial Performance of Commercial    Banks in Kenya. International Journal of Economics and         Financial Issues. 3(1), 237-     252.

lviii.            Osoro, J and D Muriithi (2017). The Interbank Market in Kenya: An Event-Based Stress    Analysis Based on Treasury Bill Market. Journal of European Scientific.

   lix.            Ongena A & Popov A., (2010). Interbank Market Integration, Loan Rates and Firm Leverage, European Central Bank, Working Paper Series No.1252 Pg. 7

     lx.            Pallant, J. (2007). SPSS Survival Manual: A Step by Step Guide to Data Analysis using SPSS. 3rd edition. Open University Press.

   lxi.            Perignon C., Busch & Littke H (2016) Banks Closing Their Water Gate? Liquidity Adjustment to Interbank Shocks and the Role of Central Bank Interventions. Journal of Financial Stability Vol.7 Pg. 51-58

 lxii.            Sharma A & Singh A. (2016). An Empirical Analysis of Macroeconomic and Bank Specific Factors Affecting Liquidity of Indian banks. Future Business Journal Vol.2 pg. 40- 53

lxiii.            Sinkey, J. F. (2002). Commercial Bank Financial Management: In the Financial services Industry. 6th edition, Prentice Hall.

lxiv.            Sichei M., Tiriongo S., Oduor, J., & Shimba C., (2012). Segmentation and Efficiency   of The Interbank   Market and Their Implication on The Conductor Monetary Policy African Development  Bank Paper Series No. 202.

 lxv.            The Kenya financial sector report for 2017, September, Issue No.8

lxvi.            Trenca I., Petria N., & Anuta E., (2015). Impact of Macroeconomic Variable upon the Banking System Liquidity. Journal of Economics and Finance-, No.32/2015:1170-1177.

lxvii.            Temizsoy, A, G Iori, and G Montes-Rojas and (2015). The role of bank relationships in the interbank market. Journal of Economic Dynamics.

lxviii.            Thompson, C., R. Kim, A. Aloe, and B. Becker (2017). Extracting the Variance Inflation Factor and Other Multicollinearity Diagnostics from Typical Regression Results. Basic and Applied Social Psychology 39.2, pp. 81–90. ISSN: 0197-3533.

lxix.            Vento G & Ganga P (2009). Bank Liquidity Risk Management and Supervision: Which Lessons from Recent Market Turmoil? Journal of Money, Investment and Banking, Issue 10 pg.   80-125

 lxx.            Vodova, P. (2011). Liquidity of Czech Commercial Banks and its Determinants.International Journal of Mathematical Models and Methods in Applied           Sciences, 6, 1060-1067.

lxxi.            Vodova, P. (2015). To Lend or to Borrow on The Interbank Market: What Matters for Commercial Banks in The Visegrad Countries. Prague Economic Papers, Vol.24 No.        06/2015

lxxii.            Xie C., Liu Y & Wang G. (2016)” The Stability of Interbank Market Network: A Perspective on Contagion and Risk Sharing “Journal of Advances in Mathematics and Physics, Vol 2016      

 

Cite this Article: