A Comparative Study of the Effect of Bank Size on Asset Quality among Commercial and Microfinance Banks in Kenya
Keywords:
Bank size, Asset quality, Non-performing loans, Commercial banks, Microfinance banksAbstract
The purpose of this study was to determine the effect of bank size on the asset quality of commercial and microfinance banks in Kenya using comparative analysis. The study was motivated by persistent poor asset quality in Kenyan banks and grounded in the Quiet Life Hypothesis. It employed an explanatory research design. The target population comprised 38 commercial and 14 microfinance banks operating in Kenya as of December 31, 2024. The research used secondary data from banks’ audited accounts and publications by the Central Bank of Kenya for the period 2014 to 2024. Panel data analysis was used to examine the effect of bank size on asset quality. The study used descriptive and inferential statistical analysis. Diagnostic tests were conducted to validate the assumptions of panel regression. The study found that bank size had a statistically significant negative effect on asset quality among both commercial and microfinance banks. Comparative analysis indicated that commercial banks recorded a statistically significant model effect. The effect among microfinance banks was found to be weaker. The null hypotheses that bank size has no significant effect on the asset quality of commercial and microfinance banks, and there is no significant difference in the effect of bank size on asset quality between commercial and microfinance banks in Kenya, were rejected. The study recommends that as bank size grows, commercial and microfinance banks establish centralized credit risk management departments, strengthen internal audits, and deploy standardized, enterprise-wide credit monitoring systems. Banking regulators should also consider differentiated, tier-based supervision models.
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Copyright (c) 2026 Bundi Momanyi, Beatrice Warue, Jane Kibanga
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