Towards Africa’s Agenda Aspirations : can Kenyan commercial banks achieve financial sustainability through economic diversification? Does debt structure matter?

Abstract

PURPOSE: The aim of this study is to examine the moderating effect of debt structure on the relationship between economic diversification and financial sustainability, a lesson for Africa commercial banks as they strive to achieve Africa’s2063 Agenda Aspirations.

METHODOLOGY: The panel regression approach was utilised to analyse the study data. The financial sustainability and Economic diversification was measured using the return on assets and the proportion of non-interest income to total income respectively. While the debt structure was measured using the proportion of the bank debt to equity.

FINDINGS: The findings showed that economic diversification positively and significantly influence the financial sustainability of Africa commercial bank sampled. Debt structure also presents negatively and significantly influences the financial sustainability. Finally the study found that debt structure negatively and significantly moderates the relationship between economic diversification and financial sustainability.

ORIGINALITY/VALUE: The study's findings will be helpful to diversification theorist to unlock both diversification premiums and discounts puzzle by adding knowledge on indirect relationships such as the moderating effect debt structure. The management of African commercial banks will be able to make good sound diversification decisions by considering the nature and degree of the debt levels in the balance sheet in quest to promote the financial sustainability.