Bank Performance and Insurance Uptake Nexus: an Empirical Analysis of Kenya

Abstract

Banks and insurance companies are part of a country’s financial system; they both provide intermediation services by converting savings into investment funds. By this, they are expected to be linked. However, few papers have ventured into this especially in the continent. This study therefore, sought to fill this by investigating causal relationship between bank performance and insurance uptake using quantitative approach without pre-determined causal direction. This was separated into the relationship between banks’ activities and life insurance uptake as well as that between banks and nonlife insurance uptake. Consequently, life insurance density and nonlife insurance density were the two measures of insurance uptake while; banks performance was gauged through ROA, ROE and private credit density. Analyses relied on time series data obtained mainly from the annual statistical abstracts for the period 1974-2019. These were done under VAR model and VECM. Granger causality tests were used to determine the causal direction. Insurance uptake was found largely to have no causal relationship with bank performance in the long run. This was however not the case in the short run, where bank performance was found to granger cause insurance uptake in most of its variables. With this in mind, both insurers and the banking sector stand to benefit from measures to strengthen the banking sector, such should therefore be encouraged. Key Words: Bank performance, Bancassurance, Credit risk and Financial intermediation.