DETERMINANTS OF FINANCIAL SECTOR DEVELOPMENT IN KENYA: CASE OF THE BANKING SECTOR

Abstract

The aim of the study was to investigate the determinants of financial sector development in Kenya using case of the banking sector. The study employed secondary data to achieve his objective. The data was analyzed using ordinary least square (OLS) method of regression analysis model. The target population was population was the period 1963 to 2015 targeting all registered commercial banks in Kenya. The sample period was 2006 to 2015 using a purposeful sample of 11 banks listed at the Nairobi security exchange as at 31st December 2015. Data was analyzed by the use of regression analysis using eviews software. The study found a negative significant relationship between financial liberalization and financial sector development, a negative significant relationship between inflation and financial sector development and no relationship between trade openness and financial sector development in Kenya. From the findings, the study concluded that financial liberalization and inflation have negative and significant effects on financial sector development in Kenya while trade openness has no significant effect. The study recommends that policies on financial liberation should be carefully selected and implemented. Policies that have a negative effect should be identified and either is dropped or implemented sparingly while policies with positive effect should be prudently implemented in order to leap maximally from the positive effects of financial liberalization. The study also recommends that inflation should always be kept low for the positive effects of financial liberalization to be felt. This can be achieved through the judicious use of the mix of monetary and fiscal policies. On trade openness recommends that more studies should be done in this area in order to find the reason(s) for the obtaining situation and takes the necessary remedies.