in the 21st Century

Transformation of Kenya’s Banking Sector, 2000–2012 37
Figure 7: Non-performing loans, 2000–2012
40
35
30
25
Percent
20
15
10
5
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: CBK Supervision Report (various years).
Total non-performing loans/total loans
Another study, which carried out stress tests on the Kenyan banking sector
using data from 2007 and 2008, suggests that the banking sector is resilient
to shocks such as an increase in bad debt provisions by 50% and a reduction
in performing loans by 50%. However, the extreme shock of an increase in
provisions by 100% would lead to 17 banks failing to meet the minimum capital
standards (Beck et al., 2010). 32 Furthermore, as the global financial crisis of
2008 showed, high liquidity in a banking system can be an illusion that can
quickly dry up if all banks become illiquid at the same time (Davidson, 2008;
Nesvetailova, 2010). While this may not be a concern for the moment, it
may become more important as the Kenyan banking system becomes more
integrated with the regional and global banking systems.
3.5 Access to finance
The most significant impact of the transformation of the banking sector has
been on outreach and access. While Kenya’s increase in financial inclusion is
often told in terms of the mobile money revolution, the increase in commercial
bank outreach has been just as important.
The latest FinAccess survey showed that the proportion of the adult population
using different forms of formal financial services stood at 66.7% in 2013
compared to 41.3% in 2009 and 27.4% in 2006. Similarly, the proportion of
32 Data used to stress test the banking system are not in the public domain and therefore we cannot repeat these tests.