Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/316414 
Authors: 
Year of Publication: 
2025
Series/Report no.: 
KBA Centre for Research on Financial Markets and Policy Working Paper Series No. 88
Publisher: 
Kenya Bankers Association (KBA), Nairobi
Abstract: 
This study investigates the demand for government securities by Kenyan banks using annual data from 2005 to 2022. Employing a fixed-effects panel regression model, the research examines the factors influencing banks' sovereign debt holdings and their implications for systemic risk. Key findings reveal that fiscal deficits, attractive bond yields, and capital adequacy requirements significantly drive banks' appetite for government securities. Over time, the similarity in sovereign holdings across banks has increased, raising concerns about systemic risk due to potential correlated exposure to sovereign debt shocks. The study also identifies a negative relationship between private sector lending and sovereign debt holdings, highlighting potential "crowding out" effects. These insights are critical for informing regulatory policies aimed at mitigating systemic risks in the Kenyan banking sector
Subjects: 
Government paper
Bank
Systemic risk
Kenya
Document Type: 
Working Paper

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