Third year students Karoney Carol-Noelle and Elizabeth Kalu, from the School of Finance and Applied Economics (SFAE), recently analyzed a research paper that tackled the effect of social media in influencing banks in Kenya.

 

 

The paper “The Extent to Which Social Media Can Influence a Bank Run” by Atieno,T and Mutinda, M (2014), from SFAE, provide empirical evidence, that there is a huge risk of a bank run occurring in Kenya due to social media. This seems to be a make book of the fall of Chase bank two years later. Atieno Tabitha (now an alumni) and Mutinda Mary (lecturer at SFAE) took the degree of belief of social media as a measure of perceived risk of a bank run taking into consideration the relationship between banks and the depositors, number of social media platforms, and demographic characteristics when certain “facts” flood the media.

 

 

A sample size of 356 Kenyans were randomly selected for the research. These Kenyans were on at least one social media platform as well as at least an account holder in a Kenyan bank. The study used social media, banking relations, and individual attributes as independent variables and bank runs as the dependent variable. There are a number of parameters that will determine the extent of bank run. This will be important concepts for Kenyan bank and regulator, CBK, to consider at this stage when banking sector is quickly loosing trust.

 

 

From this sample it was established that 72% of the sample would believe information on social media and 28% would believe the information with certainty. It is interesting to note that people who owned an account in a particular bank for more than five years would less likely believe information on social media. This may imply that the panic withdrawals may have been done by new customers or customers who have been with the Chase bank for less than 5 years.

 

 

A good proportion of Kenyans will have confidence in their bank even if there is adverse news. On the other hand an equally huge proportion will run to the bank even if they don’t believe the information. Considering withdrawals on receiving adverse information, how many Kenyans will run to the bank and withdraw their money? This is the measure of actualization risk in the case the information cascades. It is established that 12% would go ahead and withdraw their money even if they do not believe the information posted. Over 86% of respondents rated their confidence as 60% for their bank to sort whatever situation may have been mentioned.

 

 

Read more on the research by clicking here.