EFFECTS OF NON-INTEREST INCOME ON THE AVERSION OF SYSTEMIC RISKS OF COMMERCIAL BANKS IN KENYA

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EFFECTS OF NON-INTEREST INCOME ON THE AVERSION OF SYSTEMIC RISKS OF COMMERCIAL BANKS IN KENYA

Journal Title: European Journal of Business and Social Sciences - Year 2016, Vol 5, Issue 7

Abstract

Banks operate in an environment of considerate risks and uncertainty. Systemic risk has always been a vicinity of concern not only to bankers but to all in the business world because the risks of a trading partner not fulfilling his obligations in full on due date can seriously jeopardize the affaires of the other partner. The purpose of this study was to establish the effect of non-interest income on the risk averseness of commercial banks in Kenya. The objectives of the study were to: establish the effect of foreign exchange trading income on the systemic risk, assess the effect of dividend income on the systemic risk of commercial banks in Kenya, establish the effect of deposit and transaction fees and other account fees on the systemic risk and determine the effect of fees and commissions income on loans and advances on the systemic risk. The study adopted descriptive research design, the population for the study. The target population for the study comprised of 42 commercial banks in Kenya. Census sampling procedure was used to sample all the 42 commercial banks in Kenya. Secondary data was collected using documentary information from Banks annual accounts for the period 2010 to 2014. Data collected was analyzed using inferential statistics and presentations made inform of tables. Data was analyzed using a multiple linear regression model. Results revealed that a strong relationship exist between foreign exchange trading income, divided income, deposit and transaction fee and fees and commissions on systemic risk of commercial banks. The study found a positive relationship between foreign exchange trading income, divided income and fees and commissions on systemic risk of commercial banks. A 1% increase in foreign exchange trading to a 54% change in systemic risk, while a 1% increase in divided income leads to a 33.9% increase in return on equity and a 1% increase in fees and commissions leads to a 50.3% increase in return on equity. On the other hand, the study found a negative relationship between deposit and transaction fee and return on assets. This means that a 1% increase in deposit and transaction fee leads to a 20.2% decrease in return on asset of a firm. The study concluded that firms should lean towards deposit and transaction fee to manage the systemic risks. To realize increased systemic risk by commercial banks in Rwanda, they should practice corporate diversification in order to boost their income and grow their businesses. Corporate diversification acts as an extra source of income that the bank can harness and invest in capital projects. This helps commercial banks to mitigate risks since it has many sources of income.

Authors and Affiliations

Joseph Mutuma| Jomo Kenyatta University of Agriculture and Technology, Kigali, Rwanda, Dr. Joseph Kyalo Mungatu (PhD)| Jomo Kenyatta University of Agriculture and Technology, Kigali, Rwanda

Keywords

EP ID EP10829
DOI -
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