An evaluation of bank restructuring approaches adopted by the three leading commercial banks in Kenya.

Abstract

Bank restructuring IS an important aspect in minimizing bank failures and in improving the financial performance of banking institutions in both developed and developing countries. Bank restructuring is usually necessitated by bank failures where it serves as a medication for restoring financial health to individual banks and financial systems. Banks also restructure to avoid anticipated negative impact on performance of the banks either as a result of the changes in the broad macroeconomic .environment or changes in the business environment. This study reviews literature on bank restructuring, and exarnines the related approaches that commercial banks in Kenya have adopted and the implications these have had on bank profitability. In this respect, the bank restructuring approaches adopted by three Leading banks that is, the Standard Chartered Bank, Barclays Bank and Kenya Commercial Bank have been analysed. The three banks control over 50 per cent of the total assets of commercial banks in Kenya. The analysis shows that the main bank restructuring approaches that the three Kenyan Banks have adopted are operational restructuring and asset restructuring. The former includes human resource restructuring, rationalization of the branch network, improved management and accounting and better credit assessment and approval techniques, whereas the latter entails liquid asset expansion and minimization of nonperforming loans. Although the profitability for the study banks generally improved following the implementation of the restructuring measures, no clear correlation was established between bank restructuring approaches and bank profitability since other factors other than bank restructuring also played a role in influencing profitability. These include lucrative interest income from Treasury Bill investments occasioned by the need to finance government deficits and the reduction of cash and liquidity ratio requirements by the Central Bank.