FIRM CHARACTERISTICS AND CREDIT CREATION OF LISTED COMMERCIAL BANKS IN EAST AFRICA

Authors: Alfred Mbati Zakayo & Wanyoike Charles Githira

ABSTRACT

The integration of commerce within East Africa’s financial sector is hindered by the inconsistent credit creation capacities of listed commercial banks, influenced by firm-specific characteristics. This study examined the relationship between management efficiency, capital adequacy, asset quality, and bank size, and their impact on credit creation among 26 listed commercial banks in East Africa between 2018 and 2023. Using a descriptive research design and secondary data from annual reports and regulatory filings, panel data regression analysis revealed significant positive relationships between the independent variables and credit creation. Management efficiency showed a coefficient of 0.129 with a p-value of 0.006, indicating that improved management practices enhance credit creation. Capital adequacy had a coefficient of 0.243 with a p-value of 0.035, demonstrating that well-capitalized banks are better positioned to expand lending. Asset quality revealed a coefficient of 0.175 with a p-value of 0.007, suggesting that effective risk management sustains credit growth. Bank size emerged as the most influential factor, with a coefficient of 0.321 and a p-value of 0.000, affirming the role of economies of scale in enhancing credit creation. The findings emphasize the importance of internal reforms, including operational efficiency and risk management, to optimize credit creation. Policymakers are urged to establish regulatory frameworks that balance financial stability with credit availability. This study contributes to the understanding of credit creation dynamics in emerging markets, offering insights for banks, regulators, and researchers. Future research should explore the role of governance structures and fintech adoption in shaping credit creation.

Keywords: Credit Creation, Management Efficiency, Capital Adequacy, Asset Quality, Bank Size, East Africa

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