Commercial Banks’ Marketing Power In Kenya 2001-2003

This study examines whether there is a competitive environment under which commercial banks operate in Kenya over the 20221-2003 period. The study defines two markets in the sector, the lending and the deposits markets for which market shares, concentration ratios, and Herfindahl-Hirschmans’and Learner indices are calculated to access dominance and market power of the banks. The findings of the study indicate that a few large banks, most of which are foreign dominate the two defined markets. It also suggests that the top five firms control over 60 percent of the market’s loans and deposits. It uses the market shares and the Lerner index to drop the final conclusions. Banks with government participation are among the big banks and the rest are foreign banks with some local shareholding. However this does not translate to market power as banks market powers are generally very low. Local banks are favored by any decline in interest rates, as this generally leads to an increase in their market share and market power. The study recommends a continued decline of interest rate on loans and narrowing of the gap between borrowing and lending rates. It also recommends merger of small banks to enable them exploit the power of synergy and improve on their competitiveness, and the government to enforce policies that will ensure the rural and I formal sector customers, like any other citizen in Kenya’s economy, are provided with banking services