Discussion Paper No. 30 of 2003 on Bank Portfolios and Bank Earnings in Kenya: An Econometric Analysis

Abstract

This paper examines how bank earnings are affected by the bank’s choice of investment portfolios. It reveals that bank earnings increase with loans and advances, placements in other banking institutions, and government securities. The results suggest that higher pricing of loans relative to deposits can be used to reduce the opportunity cost associated with holding idle reserves. Better control of expenses, for example through reduction of overheads and sound management practices, are key to strong earning performance of commercial banks...