Impact of terrorism in the operations of licenced foreign banks in Kenya

Abstract

Terrorism has proved to be one of the most difficult problems to deal with by the entire world, it affects a countries ability to attract and sustain business development and investment thus affecting its economy and the fight for eradicating poverty. Terrorism shows a long term disruption trend, among the most hit sectors is the world economy. Most of the big banks in Kenya are foreign and hence become an easy target for terrorist. The objective of this study was to establish the impact of terrorism in the operations of licensed foreign banks in Kenya. This study adopted a descriptive cross-sectional survey design because it allows for generalization of findings within a particular parameter. The 7 banks with operating licenses sufficed as the target population for this study and the study collected both primary and secondary data where primary data was collected using a semi structured questionnaire then were coded and analyzed using SPSS. The study found out that terrorism activities witnessed in the Country drove the cost of insurance for the licensed and foreign banks in Kenya up. This made operational costs increase thus diluting the operating profits and that terrorism activities reduced the scope of insurance covers for commercial banks. The influence that terrorism had on the operations of Licensed Foreign Banks led to duplication of roles for the sake of creating a back-up team, increased operational costs, influenced the compliance costs and increased the level of exposure for licensed foreign banks. The study concludes that terrorism activities reduced the scope of insurance covers and increased the cost of the banks, thus for them to fully cover their risks, they need to pay more and re-negotiate with the insurance industry players and were faced with duplication of roles for the sake of creating backup team so as to ensure continuity in business operations in case of being affected by a terrorism event. The study recommends that regulators could ensure that all banks have in place effective frameworks to identify, assess, monitor, and control or mitigate material operational risks resulting from terrorism as part of the overall approach to risk management and foreign banks themselves could take all necessary steps to ensure their ability to operate on an ongoing basis and limit losses in the event of severe business disruption, through adequate contingency and business continuity plans.