Evolution of the Interbank Market Network Structure: The Case of Kenya
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Date
2026
Authors
Tiriongo Samuel
Kamau Anne
Ndirangu Lydia
Journal Title
Journal ISSN
Volume Title
Publisher
AERC
Abstract
This study characterizes the evolution of the interbank market network structure in Kenya, as a case study of a developing money market using a network-based approach, employing overnight trading data spanning 2013 to 2020. The study extracts and describes the evolution of well-known complex network measures, including degree distribution, network density, and centrality of the players, their clustering behaviour, and clique formations, to characterize the topology of the interbank market. Study findings show that the interconnectedness among banks in the market varied over the analysis period, with large banks being the most connected as debtors and small banks exhibiting the least funding diversification. On the lending side, small banks are just as diversified as their larger counterparts, particularly before 2016. Thereafter, as counterparty risk assessments tightened, large banks dominated the market. Other microstructure market characteristics reveal several insights about the interbank market, including: an incomplete structure, with only about 1.5 percent of banks having connections with almost all other banks; a highly vulnerable structure to a few hub banks; and a varying assortativeness structure depending on the nature of the shock presented. These findings carry useful insights for understanding interbank market counterparty risk profiling and the identification of critical players in the market, which have implications for the banking sector liquidity management strategies and financial stability. Understanding the fragility of the market and the existing anchors to market stability also facilitates the monetary authority to minimize the risk of contagion and enhance the resilience of the system in the event of a shock. Overall, the interbank market is largely fragile, and thus may not be sufficiently developed to be relied on for pricing of liquidity and effective transmission of monetary policy signals.