Determinants of financial disintermediation among commercial banks in Kenya

Abstract

Financial disintermediation is has been described as the elimination of banks as intermediaries between savers and borrowers which makes the two parties transact directly between them. When disintermediation happens may choose to source for better returns for their deposits either through NBFIs or by directly transacting in non-bank capital markets. This study was therefore carried out against this background to establish the determinants of financial disintermediation within the financial sector in the country especially in Kenya commercial banks. Trends of financial disintermediation have been noted in other markets and given the growth in the Kenya financial services sector and financial products innovation, it was imperative to test if such factors have promoted disintermediation. Secondary data from the year 2005-2015 used was collected from the published commercial banks financial statements, Central Bank of Kenya, mutual fund reports and Safaricom. Descriptive research design was used in this paper whose objective was to investigate the determinants of financial disintermediation within Kenya commercial banks. The study findings showed a positive correlation between the ratio of NBFI deposits to total bank deposits and the independent variables measured. The study therefore supports that Kenya has had some level of disintermediation in the banking sector especially arising from financial innovation. Technological advancement and innovation within the financial services industry are therefore some of the determinant of disintermediation.