INFLUENCE OF THE LEVEL OF CAPITAL ADEQUACY ON CREDIT RISK FOR DEPOSIT TAKING SACCOS IN KENYA
Abstract
This Study aspires to examine how Capital adequacy affects the credit risk profile of deposit taking SACCOs in Kenya. Capital Adequacy Ratio is the proportion of a bank's capital to its Risk Weighted Assets. On the other hand, Credit risk is the probability that counterparty will fail to meet its obligations in accordance with agreed terms. Credit risk is postulated by the level of Non-performing loans to Total assets. A Causal research design was adopted upon a panel of all deposit taking SACCOs in the period 2011-2014. The dependent variable is represented by a change in credit risk, while Capital Adequacy is represented by the level of capital to risk weighted Assets. Descriptive and Regression analysis were used to establish the relationship between the variables. The study found out that Capital adequacy as measured in terms of Capital base to Risk weighted assets, has a negative and statistically significant effect on the level of Credit risk of Deposit taking SACCOs in Kenya.
Key Words: SACCO-Savings and Credit Cooperative Organization, SASRA-SACCO Society Regulatory Authority, Credit risk, Capital Adequacy, Risk Weighted AssetFull Text:
PDFReferences
Ahmed, N., Akhtar, M. F., & Usman, M. (2011). Risk management practices and Islamic banks: An empirical investigation from Pakistan. Interdisciplinary Journal of Research in Business, 1(6), 50-57.
Ahmad, N. H. & Nizam. A, S. (2004). Key factors influencing credit risk of Islamic bank: A Malaysian case. Review of Financial Economic 2. Jeddah: Islamic Development Bank-Islamic Research and Training Institute.
Ahmed, N.H., and Ariff, M. (2001).Multi-country study of Bank Credit
Determinants.International Journal of Banking and Finance, 5(1), 200-208. [3].
Al-Smadi, M. O. M. (2010). Credit risk, macroeconomic and bank specific factors in Jordanian banks. PhD Thesis, Universiti Utara Malaysia.
Avery, R. B., Calem, P. S., & Canner, G. B. (2004). Consumer credit scoring: Do situational circumstances matter? Journal of Banking and Finance, 28(4), 835-856.
Bandyopadhyay, A. (2007). Credit risk modeling for managing Bank's Agricultural Loan portfolio: MPRA No.5358. http://ideas.repec.org/p/pra/mprapa/5358.html
Bank of Uganda. (2007). Annual macroeconomic data 2007/08. Retrieved; 1/09/2009, from www.bou.or.ug.
Berger, A.N. and DeYoung, R. (1997). Problem Loans and Cost efficiency in Commercial Banks, Journal of Banking and Finance, 21, pp.849-870.
Boudriga, Abdelkader; Boulila, Neila and Jellouli, Sana; 2009. Does Bank Supervision Impact Nonperforming Loans: Cross-Country Determinants Using Agregate Data MPRA Paper No. 18068,
Calcagnini, G., Farabullini, F., & Giombini, G. (2009). Loans, Interest Rates and Guarantees: Is There a Link? Working Paper, 0904. Retrieved from http://ideas.repec.org/p/urb/wpaper/09_04.html
David H. Pyle(1995). Research Program in Finance ,Working Paper RPF-272 Bank Risk Management: Theory
Das, A., and S. Ghosh (2003), ‘Determinants of Credit Risk’, paper presented at the Conference on Money, Risk and Investment held at Nottingham Trent University in November 2003
Fries, S., Neven, D. and Seabright, P. (2002), “Bank performance in transition economies”,Working Paper, No. 76, European Banks for Reconstitution and Development, London,G Hassan MK, Hussain ME (2004). Basel capital requirements and bank credit risk taking
in developing countries, University of New Orleans/Drexel University, LeBow College of Business, Department of Economics and Finance, Working Paper
Koehn, M. and Santomero, A. M., 1980, Regulation of bank capital and portfolio risk.
Journal of Finance 35, 1235_1244.
Kombo, D.K. & Tromp, D.L.A. (2009). Proposal and Thesis Writing: An Introduction. Paulines Publications Africa
Mugenda, O. M. & Mugenda, A. G. (2003). Research Methods: Quantitative and Qualitative Approaches, Acts Press, Nairobi-Kenya
Mugume, J. & Ojwiya, C. (2009). Interest rate spreads in Uganda: Bank specific characteristic or Policy change. Bank of Uganda working paper series, 3(2), 24-48.
Reserve Bank of Australia. (1997). Annual report 1997/8. www.rba.gov.au
Rime, B. (2001), “Capital requirements and bank behaviour: empirical evidence for Switzerland”,Journal of Banking & Finance, Vol. 25 No. 5, pp. 789-805.
Straka, J. (2000). A shift in the Mortgage Landscape: The 1990s Move to Automate Credit Evaluations. Journal of Housing Research, 11(2), 207-232.
Shingjerji Ali (2013): Impact of Bank Specific Variables on the Nonperforming loans ratio in Albanian Banking System, Journal of Finance and Accounting: Vol.4, No.7.
Sinkey Joseph, F., & Mary, B. G.(1991). Loan –Loss Expereince and Risk Taking Behaviour at Large Commercial Banks. Journal of Financial Services Research, 5(1), 43-49. http://dx.doi.org/10.1007/BF00127083
Tumusiime, M. (2005). State of Banking in Uganda. In Uganda Banker's Association (ed) (Speech read on the occasion of the banker of Uganda’s annual dinner at Speke hotel Munyonyo ed.). Kampala.
Van Ryn M. & Heaney, C. A. (1992). What's the use of theory? Health Educ. Q. 19:315-30
Wheaton, W., Torto, R., J, S., & Hopkins, R. (2001). Evaluating Real Estate Risk: Debt Applications. Journal of Real Estate Finance, 18(3), 29-41.
Williams, J., 2004. Determining management behaviour in European banking. Journalof Banking and Finance 28, 2427-2460.
DOI: http://dx.doi.org/10.61426/sjbcm.v3i2.277
Refbacks
- There are currently no refbacks.
This work is licensed under a Creative Commons Attribution 3.0 License.
PAST ISSUES:
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.