PRUDENTIAL REGULATIONS AND FINANCIAL DEEPENING AMONG TIER II COMMERCIAL BANKS IN KENYA
Abstract
This study explored prudential regulations and financial deepening link among Tier II commercial banks in Kenya. The agency theory, financial intermediation theory, liquidity management preference theory and the capital buffer theory anchored the study. The study used descriptive survey and correlational design with the target population being the eight Tier II commercial banks as licensed by the CBK as at 31st December 2021. Census was undertaken. Information in its auxiliary form was gathered over timeframe as from 2017 through 2021. The data analysis was carried out using both descriptive statistics such as means and standard deviations as well as inferential statistics such as correlation and regression. The results were then presented through tables and figures. Diagnostic tests covering normality, multicollinearity and autocorrelation were carried out prior to regression analysis. In the course of conducting this study, all the literature and information obtained was appropriately cited and referenced as an ethical concern. The study established that liquidity management exerted the greatest significant effect on financial deepening (β= 0.657, p<0.05) followed by corporate governance that had negative and significant effect (β= -0.567, p<0.05), agent banking (β= 0.027, p<0.05) and lastly capital adequacy (β= 0.001, p<0.05) respectively all having positive and significant effect on financial deepening. The study concluded that prudential regulation is an important variable that allow banks to grow their financial depths. The study recommended that tier II commercial banks in Kenya should establish an optimal level of the equities and assets that would optimize financial depth. The marketing managers working among tier II commercial banks in Kenya should invest more in direct sales people to promote and create more awareness among customers on the need to take up agent banking services. The boards of directors working in tier II commercial banks in Kenya should strengthen and improve on their oversight role, demand for accountability on the side of management and ensure they minimize conflicting interests between managers and shareholders. The marketing managers of the tier II commercial banks in Kenya should put in place sound marketing practices for maximization of the deposits from customers which are a key indicator of financial deepening that the study built on for economic progress.
Key Words: Capital Adequacy, Agent Banking, Corporate Governance, Liquidity Management
CITATION: Ndwiga, W. W., & Theuri, J. (2023). Prudential regulations and financial deepening among tier II commercial banks in Kenya. The Strategic Journal of Business & Change Management, 10 (4), 1319 – 1336. http://dx.doi.org/10.61426/sjbcm.v10i4.2820
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DOI: http://dx.doi.org/10.61426/sjbcm.v10i4.2820
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