REQUIREMENTS FOR CAPITAL ADEQUACY OF COMMERCIAL BANKS AND METHODOLOGY OF ANALYSIS

Abstract

The purpose of the article was to study the significance of capital adequacy requirements within the Basel III framework for commercial banks in Kenya. A descriptive survey design was used for a population consisting of 43 commercial banks operating in Kenya. The target population consisted of 159 management staff working in the head offices of various commercial banks in Kenya. The population included senior, middle, and junior/entry-level management staff. A sample of 30% was selected from each group. Primary data were collected using questionnaires, which were delivered to the banks' head offices and collected later once the respondents had filled them out. Descriptive analysis was used for analyzing quantitative data, while content analysis was employed for qualitative data. The study confirms that capital adequacy requirements are important for commercial banks. The study also shows that financial stability, credit risk management, reduced vulnerability to liquidity shocks, balance sheet structure, and deposit insurance affect the capital requirements of commercial banks in Kenya. Moreover, the study concludes that Basel III increases capital requirements for counterparty credit risk arising from derivatives, repurchase agreements, and securities financing activities. This study recommends that banks ensure flexible Basel III management expertise that provides speed, accuracy, and efficiency to achieve a competitive advantage.