Assessing Effects of Capital Adequacy Ratio Requirements on Loan Demand of Kenya Commercial Bank Eldoret Town

Abstract

Security of investors' reserve remains the significant worry of bank controllers. It is in this regard the capital sufficiency becomes significant and imperative. Capital adequacy is an origination that results from reworking the banks' current capital structure to rebuild the banking industry against the widespread establishment. This research's objective was to assess the effect of capital adequacy ratio requirements on the Bank of Kenya Commercial Bank's loan demand. The study adopted the Capital Buffer Theory. The study reviewed related literature to capital adequacy ratio requirements on the efficiency in the Bank. This study adopted an exploratory research design. The sample population of interest in this study consisted of all 23-bank employees of KCB, Referral Branch. The study adopted a census survey. The following research questions guided the interview.   How effective would be capital adequacy ratio requirements on loan demand of Kenya Commercial Bank? The study used interview guides in the collection of data. Qualitative analysis was used to analyze the perception data collected from the key informants. Joint subjects were determined, and qualitative data, organizing, and discussing based on the main objective were done. These were presented using grouped data collected in the form of discussion. From the interviewed respondents, it was found that there might be significant impacts of capital adequacy ratio requirements on loan demand of KCB. The elasticity of loan rate due to capital adequacy ratio requirement might affect loan demand, implying that there would be a change in loan demand for every percentage change in the loan rate. The study recommends that bank regulators be keen on the banks' capital adequacy ratio by laying down financial regulations on liquidity since financial regulation aims to enable banks to improve liquidity and solvency. Stricter regulation may be suitable for bank stability, but not for bank efficiency; restricting banks may lower bank efficiency and increase the probability of a banking crisis. There is a need for capital supplementation to keep up with Capital Adequacy Ratio (CAR) since stricter capital adequacy, robust supervision, and market discipline power promotes technical efficiency.

Keywords: Loan, Demand, Ratio, Capital, Bank

DOI: 10.7176/RJFA/12-6-06

Publication date:March 31^st 2021