Bank Size and Bank Expansion in Kenya As Measured By Asset and Deposit Growth: Evidence from Panel Financial Data (2015–2024)

Abstract

This study examines whether and why smaller commercial banks in Kenya expand more slowly than larger banks, using tier-segmented panel data (Tier I versus Tier IV) over 2015–2024. Bank expansion is proxied by annual asset and deposit growth. Explanatory variables capture size (log assets), cost efficiency (cost-to-income ratio), funding cost (interest expense-to-deposits proxy), asset quality (NPL ratio), and capital adequacy (core capital-to-RWA). Across pooled OLS models with heteroskedasticity-robust (HC3) standard errors, capital adequacy emerges as the most statistically robust and economically meaningful correlate of slower expansion: a one-percentage-point increase in the core-capital ratio is associated with approximately 3.29 percentage-point lower asset growth and 4.55 percentage-point lower deposit growth. Size is directionally positive but imprecisely estimated once controls are included, while efficiency does not mediate the size–growth association. The results highlight a growth–prudence trade-off in which prudential buffers materially constrain balance-sheet expansion for small banking segments. The paper contributes rare tier-segmented evidence from an African emerging market and offers implications for proportional regulation, capital calibration, and consolidation–competition trade-offs in Kenya.