The Effect of Bank Restructuring on Financial Performance Controlled by Customer Deposits: An Empirical Investigation of Commercial Banks in Kenya

Kithinji AM. "The Effect of Bank Restructuring on Financial Performance Controlled by Customer Deposits: An Empirical Investigation of Commercial Banks in Kenya ." INTERNATIONAL JOURNAL FOR INNOVATIVE RESEARCH IN MULTIDISCIPLINARY FIELD. 2019;5(1):13-19.


Abstract: The ability of commercial banks to provide market knowledge, transaction efficiency and contract
enforcement create demand for its services in the financial markets. Commercial banks operating in Kenya have
undertaken restructuring so as to be more competitive, to restore bank solvency, to increase the banking sector
capacity for financial intermediation and to improve financial performance. Previous researches done on the aspects
of bank restructuring and financial performance found conflicting results and some of them did not include the
intervening effect of deposits on this relationship. The study is informed by the theory of financial intermediation,
agency theory, and the institutional theory. This study sought to investigate the relationship between bank
restructuring, deposits and financial performance of commercial banks in Kenya. The population of the study was
the 44 commercial banks licensed and registered under the banking act to do business in Kenya but data availed
from financial statements of 39 commercial banks which were in operation for the period 2002 to 2014. Descriptive
and inferential data analysis methods were used to analyze the secondary data collected. The empirical findings
conclude that commercial banks use all the four types of bank restructuring which were financial, capital, operational
and asset restructuring. The findings of the first model revealed that capital restructuring, and asset restructuring
were the only variables found to have significant positive and negative influence respectively on the performance of
commercial banks in Kenya. In testing the second hypothesis, deposit were used as an intervening variable on the
relationship between bank restructuring and financial performance, where financial restructuring and capital
restructuring was found to significantly cause an increase in the profit margin of commercial banks while operational
restructuring and deposits were found to have a significant negative effect on bank profits. The composite variable
of financial services was not found to have a significant effect. Therefore, the research disclosed that operational
restructuring, and deposits did not influence banks profitability. The research concludes that the performance of most
commercial banks in Kenya is determined through restructuring banks’ financial and capital ratios The study
recommends that there is need to institute policy reforms geared towards viable restructuring and deposit
mobilization and that to continuously improve bank performance banks should encourage more borrowing and funds
from shareholders and banks need to continuously focus on restructuring rather than ownership.

Key Words: Bank Restructuring, Capital, Financial, Asset, Operational, Deposits.
Bank restructuring is usually undertaken to address the problems in individual banks experiencing

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