Financial Stability Analysis of Commercial Banks in East African Financial Markets: The Cases of Kenya and Ethiopia

Abstract

This study evaluates the financial stability of banks in Kenya and Ethiopia using the CAMEL framework: Capital Adequacy (CA), Asset Quality (AQ), Management Efficiency (ME), Earnings Quality (EQ), and Liquidity (LIQ). Financial data from twelve commercial banks between December 31, 2018, and December 31, 2022, were collected from bank websites Both Kenyan and Ethiopian banks maintain capital adequacy ratios above Basel II regulatory requirements, with Kenyan banks holding more capital for risk-weighted assets. Diamond Trust Bank (Kenya) has the highest capital adequacy ratio. Kenyan banks allocate higher loan loss provisions for non-performing loans, with Abyssinia Bank (Ethiopia) having the highest provision and Co-operative Bank the lowest. Ethiopian banks improved loan-related asset quality, while Kenyan banks saw declines post-pandemic. Kenyan banks showed higher efficiency, with KCB Bank leading in interest income to expense ratio. The findings highlight key strengths and weaknesses, offering insights for investors and policymakers.

Keywords

• CAMEL Analysis
• Nairobi Stock Exchange
• Ethiopian Stock Exchange
• Financial Stability

Doğu Afrika Finans Piyasalarındaki Ticari Bankaların Finansal İstikrar Analizi: Kenya ve Etiyopya Örnekleri

Abstract

Bu çalışma, Kenya ve Etiyopya'daki bankaların finansal sağlamlığını CAMEL çerçevesi (Sermaye Yeterliliği (CA), Varlık Kalitesi (AQ), Yönetim Etkinliği (ME), Karlılık Kalitesi (EQ) ve Likidite (LIQ)) kullanarak değerlendirmektedir. 31 Aralık 2018 ile 31 Aralık 2022 tarihleri arasındaki on iki ticari bankaya ait finansal veriler, bankaların internet sitelerinden elde edilmiştir. Hem Kenya hem de Etiyopya bankaları, Basel II düzenleyici gerekliliklerinin üzerinde sermaye yeterliliği oranlarını korumaktadır. Ancak, Kenya bankaları risk ağırlıklı varlıklar için daha fazla sermaye bulundururken, en yüksek sermaye yeterliliği oranına Diamond Trust Bank (Kenya) sahiptir. Kenya bankaları, takibe düşen krediler için daha yüksek karşılık ayırırken, en yüksek karşılığı Abyssinia Bank (Etiyopya), en düşük karşılığı ise Co-operative Bank sağlamaktadır. Pandemi sonrası Kenya bankalarının krediye dayalı varlık kalitesi oranları düşerken, Etiyopya bankaları bu oranları iyileştirmiştir. Kenya bankaları daha yüksek verimlilik göstermiş olup, KCB Bank faiz geliri/gider oranında liderdir. Çalışma, güçlü ve zayıf yönleri ortaya koyarak yatırımcılar ve politika yapıcılar için önemli içgörüler sunmaktadır.

Keywords

• CAMEL Analizi
• Nairobi Borsası
• Etiyopya Borsası
• Finansal İstikrar

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