Factors Causing Corporate Financial Distress in Commercial Banking Sector in Kenya: A Case of Chase Bank

A Research Project Proposal Submitted to the Chandaria School of Business in Partial Fulfilment of the Requirement for the Degree of Masters in Business Administration (MBA)The general purpose of the study was to establish the factors causing corporate financial distress at chase bank. This study was guided by the following research questions: Does management type determine corporate financial distress at chase bank. Does capital adequacy determine corporate financial distress at chase bank? Does effectiveness of credit management determine corporate financial distress at chase bank? A descriptive research was adopted because the study was aimed at collecting information from respondents on their perceptions in relation factors causing corporate financial distress at chase bank. Further, the correlational approach was adopted as the study sought to describe relationship between the independent – management type, capital adequacy, and credit management - and dependent variables – financial distress. The target population for this study comprised of Managers, Heads of departments and assistant managers (who are in the operational level in their structure in the 77 Chase bank branches. From the initial target population of 152, sample size of 110 was arrived at and only 71 were filled and returned giving a response rate of 65%. It was established that quality of management affect financial distress and the bank has got managerial restructuring policy with which the majority of the respondents agreed with. It was also revealed that corporate decisions process affects financial distress and the Management of disputes was critical in realization of goals. At the same time, it was clear from the findings that the decline in capital relative to assets is as an indication for potential financial difficulties. The findings also established that Chase bank had credit management policy. It was also noted that most respondents agree that Firms that are financial distress have less trade receivables. It was also established that Firms in financial distress are forced into bankruptcy when they fail to satisfy their agreements with their suppliers. The study concluded that the banking institution has applied a transformational leadership style in the day-to-day running of the institution. Maintenance of a policy manual is necessary in the sector and needs regular updates to be up-to-date with the dynamic changes in the sector. It was also concluded that capital adequacy evaluation is vital however the bank has not embraced it and this could the reason why chase bank collapsed. The bank should increase its ability to deal with its internal losses in case of crisis. The liquidity ratio should also be revisited since it is not properly focussed on In iv addressing the third research objective, considering the relationship between credit management and profitability, commercial bank managers must expand efforts to credit risk management, especially to control the non-performing loans. It is recommended that the bank should ensure that their policy manual is maintained and updated regularly, the institution also need to have in place policies to help guide the firm to overcome dynamic changes in the sector. As banks with capital inadequacy are vulnerable to financial distress, chase bank may consider enhancing its incentives on proposals for mergers, consolidations, and acquisitions among rural banks or other strategic alliances and business combinations, primarily for economies of scale and other valuable reasons. The regulatory bodies need to be equipped with enhanced information technology systems that can monitor loan losses, capital adequacy, and other credit and profitability indicators off-site. More research needs to be done on the other factors such as strategy, structure, systems, and goals to determine which one significantly affect Chase bank. The same variables also need to be tested on other banks in order to generalize the findings in the banking sector