Articlebronze2023

Factors Affecting Financial Performance of Commercial Banks in Kenya

11 citations0/0 files storedJournal of Finance and Accounting

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Banking Sector Performance and Management Banking stability, regulation, efficiency Financial Analysis and Corporate Governance

Abstract

Commercial banks are crucial in determining a nation's economic growth and stability. The study objective was to determine the variables that affect Kenya's commercial banks financial performance. ROA measurement of financial performance served as the dependent variable. The independent factors included bank size, managerial effectiveness, asset quality, liquidity, and capital adequacy. To explain the relationship between the dependent and independent variables, the study employed a descriptive research approach. The analysis was done using a multiple linear regression model with secondary data obtained from banks audited yearly financial statements. The findings revealed that the predictor variables accounted for 40.6% of changes in financial performance while 59.4% changes in financial performance could be explained by other internal factors not considered in this study. Additionally, it was established that AQ and SZ had a favorable impact on ROA, supporting the idea that a rise in AQ and SZ causes an increase in ROA. On the other hand, CA, LR and ME had negative effect on ROA leading to the conclusion an increase in CA, LR and ME leads to a decrease in ROA. The study recommended that the CBK adopt flexible policy to match the prevailing economic and market conditions in determining the minimum capital adequacy and liquidity ratios to caution banks from holding excessive capital and assets. A study on the impact of CAMEL indicators on financial performance including all commercial banks in Kenya was recommended because the study left out earning capacity as an internal factor. Keywords: Financial Performance, Capital Adequacy, Asset Quality, Management Efficiency, Size & Liquidity

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References

2000Research Methods for Business Students 2013Business Research Methods 2006Bank-specific, industry-specific and macroeconomic determinants of bank profitability 2003Contestable Markets: An Uprising in the Theory of Industry Structure 1998The Efficiency Cost of Market Power in the Banking Industry: A Test of the “Quiet Life” and Related Hypotheses 2013DETERMINANTS OF FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA 2016The determinants of bank profitability: empirical evidence from European banking sector 2012Liquidity risk and performance of banking system

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