Capital Adequacy, Earnings and Financial Stability: Empirical Evidence from Commercial Banks in Kenya
Mary Ndinda *
KCA University, Kenya.
*Author to whom correspondence should be addressed.
Abstract
The study sought to evaluate the effect of capital adequacy and earnings on financial stability of commercial banks in Kenya. As such the study was predicated on buffer capital, efficiency structure and financial intermediation hypotheses. The investigation employed explanatory design. The research target population comprised of forty Kenyan commercial banks which was arrived at using census approach. Secondary data was sourced from audited banks’ annual reports with the help of a secondary data review guide. Analysis of data was done using descriptive statistics and panel regression techniques with various diagnostic tests application. The study found that capital adequacy has no significant effect on financial stability of commercial banks in Kenya. The study found that earnings had significant effect on financial stability of commercial banks in Kenya. The study recommended that banks should strive towards increasing their assets holding while applying strategies geared towards improving earnings alongside as these will in turn bring about improvements in the financial stability of Commercial Banks in Kenya. Additional studies can be done focusing of insurance firms which are also important players in the financial sector. Further studies can as well be carried out on Microfinance Banks in Kenya.
Keywords: Capital adequacy, earnings, financial intermediation and commercial banks in Kenya