Level of Compliance with Insider Lending Guidelines, Bank Size and Technical Efficiency of Commercial Banks in Kenya

This study examines the impact of level of compliance with insider lending guidelines on the technical efficiency of commercial banks in Kenya while exploring the role of bank size as a moderator. The study employed a quantitative, explanatory research design and a longitudinal panel dataset from 37 commercial banks in Kenya over the period 2013-2022. It used secondary data from publicly available sources, such as annual reports, audited financial statements, and the Central Bank of Kenya's regulatory publications. The Data Envelopment Analysis (DEA) model was employed to compute bank efficiency scores. Due to the censored nature of the dependent variable, the Two-limit Tobit model is used in the regression analysis, with parameter estimation conducted using Maximum Likelihood Estimation (MLE). Findings from this study establish considerable variability in compliance levels for banks, and those meeting or exceeding thresholds have relatively high technical efficiency compared with those not in compliance. Notably, this study establishes that bank size moderates the impact of compliance on technical efficiency; in this matter, large banks have better capacity to absorb the associated cost involved in insider lending controls. Therefore, this study recommends improved means for compliance in addition to ensuring improved bank controls from management. Keywords: Insider Lending, Technical efficiency, Bank size, Commercial banks