Capital Risks and Capital Adequacy of Commercial Banks in Kenya


Fredrick Ambale Mugwanga , Dr. Fredrick Kogilo ,

Download Full PDF Pages: 10-17 | Views: 12 | Downloads: 6 | DOI: 10.5281/zenodo.10610655

Volume 13 - January 2024 (01)


This study aimed at identifying whether capital risks was among the most important factors that determine Capital Adequacy of Commercial Banks in Kenya for the period 2009 – 2013 using Multiple Linear Regression Analysis and the Correlation Coefficient (Pearson Correlation). The target population comprised all registered commercial banks in Kenya in a five year period 2009 to 2013. Secondary data was used from Nairobi Securities Exchange for listed banks and management of banks that are not listed. Following the financial crisis of the 2007-2009, stringent regulatory measures, such as higher capital requirements have become more prominent as a move towards having stable and more competitive banking sector. Banks play a critical role in the allocation of society’s limited savings among the most productive investments, and they facilitate the efficient allocation of the risks of those investments. The study showed that there existed a significant relationship between capital adequacy and capital risk.  Since the P-value of the F-test is less than alpha, the overall conclusion of the study was that there is a significant relationship between Capital Risks and Capital Adequacy. On this basis of the findings the study recommends that report of financial statements and data should include rules and basis on which capital adequacy measurement is based, which will lead to raising banking and finance awareness that will enhance banks competitive positions with regional and international banks


Capital Risks, Capital Adequacy, Commercial Banks



i.        Aburime, U. (2005). Determinants of Bank Profitability: Company-Level Evidence from Nigeria.

ii.      Alexandru, C., Genu, G., Romanescu, M. (2008). The Assessment of Banking Performances-Indicators of Performance in Bank Area.

iii.    Al-Tamimi, H., Hassan, A. (2010). Factors Influencing Performance of the UAE Islamic and Conventional National Banks. Department of Accounting. Finance and Economics, College of Business Administration, University of Sharjah.

iv.    Al-Tamimi, K.A. and Obeidat S.F. (2013). Determinants of Capital Adequacy in Commercial Banks of Jordan an Empirical Study. International journal of Academic Research in Economics and Management Science.

v.      Al malleeji, H. (2002). Development of accounting measurement for Judging capital adequacy in commercial banks, An empirical study, Scientific Journal

vi.    Athanasoglou, P., Sophocles, N., Matthaios, D. (2005). Bank-specific, industry-specific and macroeconomic determinants of bank profitability.

vii.  Azam, M., Siddiqoui, S. (2012). Domestic and Foreign Banks’ Profitability: Differences and Their Determinants. International Journal of Economics and Financial Issues 2(1),33-40.

viii.Baltagi, B. (2005). Econometric Analysis of Panel Data. England: John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ.

ix.    Baral, K. (2005). Health Check-up of Commercial Banks in the Framework of CAMEL: A Case Study of Joint Venture Banks in Nepal. The Journal of Nepalese.

x.      Barakat, A. (   December 2009). Banks Basel II Norms Requirement Regarding. International Control Field Study on Jordan Banks, Delhi Business Review.

xi.    Berger, A.J. Herring  and Szego, G.P. (1995). The role of capital in financial The Romanian Economic.

xii.  Bevun, A. and Danbolt, J., (2000). Capital Structure and Determinants, ACE Financial Flows in Transition and Market Economics.

xiii.Bichsel, R. and  Blum, J.  (2005). Capital regulation of banks: Where do we stand and where are we going?

xiv.Bourke, P. (1989).  Concentration and other determinants of bank profitability in Europe.Central Bank of Kenya (2008). Bank Supervision Annual Report, Kenya.

xv.   Claessens, S., Hore, N. (2012). Foreign Banks: Trends, Impact and Financial Stability

xvi.Dang, U. (2011). The CAMEL Rating System in Banking Supervision: a Case Study of ArcadaUniversity of Applied Sciences, International Business.

xvii.   Farazi, S., Erik, F., Roberto, R. (2011). Bank Ownership and Performance in the Middle East and North Africa Region.

xviii. Flamini, C., Valentina C., McDonald, G., Liliana, S. (2009). The Determinants of Commercial BankProfitability in Sub-Saharan Africa. IMF Working Paper.

xix.Diamond, D. Raghuram, A. (2000). A Theory of Bank Capital. The Journal of Finance.

xx.  Gujarati, N. (2003). Basic Econometrics. United States Military Academy.

xxi.Gul, S., Faiza, I., Khalid, Z. (2011). Factors Affecting Bank Profitability in Pakistan. The Romanian Economic Journal, 2(3), 6-9.

xxii.  Heffernan, S. (1996). Modern banking in Theory and Practice. England: Published by John Wiley & Sons Ltd, West Sussex PO19 1UD.

xxiii.   Ismi, A. (2004). Impoverishing a Continent: The World Bank and the IMF in Africa. 2004.

xxiv.Khrawish, A. (2011). Determinants of Commercial Banks Performance: Evidence from Jordan. International Research Journal of Finance and Economics. Zarqa Universiy

xxv.  Mathuva D. (2009). Capital Adequacy, Cost Income Ratio and the Performance of Commercial  Banks:  The  Kenyan  Scenario.  The  International  Journal  of  Applied Economics and  FinancE.

xxvi. Mugenda, O and Mugenda, A (1999). Research Methods: Qualitative and Quantitative Approaches. Publisher African Centre for Technology studies

xxvii.    Murthy, Y., Sree, R. (2003). A Study on Financial Ratios of major Commercial Banks. Research Studies, College of Banking & Financial Studies, Sultanate of Oman.

xxviii.   Navapan, K. and Tripe D. ( 2003). An exploration of the relationship between bank capital levels and return on equity.

xxix.  Ogilo, F. (2012). The Impact of Credit Risk Management on the financial performance of Commercial Banks in Kenya. DBA Africa Management Review.

xxx. Oloo, O. (2010). Banking Survey Report, The best banks this decade 2000-2009, Think Business Limited, Kenya.Oloo, O. (2011). Banking Survey Report, The best banks this decade 2001-2010, Think Business Limited, Kenya.

xxxi.  Olweny, T., Shipho, T. (2011). Effects of Banking Sectoral Factors on the Profitability of Commercial Banks in Kenya. Economics and Finance Review, 1(5), 1-30.

xxxii. Ongore, V. (2011). The relationship between ownership structure and firm performance: An empirical   analysis   of   listed   companies   in   Kenya.   African   Journal   of   Business Management, 5(6), 2120-2128.


Cite this Article: