INFLUENCE OF LIQUIDITY DISTRESS FACTOR ON PERFORMANCE OF COMMERCIAL BANKS IN KENYA
Abstract
The Central Bank of Kenya advised commercial banks to take precautions for the growth of banking industry. In Kenya Imperial Bank and Chase Bank were placed under liquidation due to liquidity problems. CBK established performance of Banks whereby 8 Banks obtained a negative ROA as a result of poor investments. The main objective of this research was to establish the influence of liquidity on performance of Kenyan Commercial Banks. This study was guided by Liquidity Preference theory. The study used a cross sectional but descriptive survey design on 39 commercial banks incorporated under census survey. Secondary data results were retrieved from annual financial statement reports of Kenyan Commercial Banks. This study would help both managers Commercial Banks and the government of Kenya as it seeks to develop the banking sector and enhance financial growth. Panel data was used and hypothesis test at a significance level of 0.05. Descriptive analysis included; skweness, kurtosis and jarque bera while inferential analysis involved correlation analysis. The study ensured that the assumptions of linear regression based on normality test and linearity were tested. The data was presented in form of tables and models. The results were that liquidity distress factor significantly influenced performance of commercial banks. Panel data Pearson correlation results show a moderate significant negative association between liquidity and financial performance of Commercial Banks since p = 0.0000 (p<0.05). Fixed effect simple regression analysis indicated that Liquid assets to total assets p = 0.000 (p<0.05) had a significant and positive influence on financial performance as liquid assets to total deposit p = 0.010 (p<0.05). It was recommended that stakeholders should source for enough asset bases both liquid and total assets to increase their liquidity position. Commercial Banks should also encourage their customers to maintain deposits for a better liquidity position.
Key words; Commercial banks, Liquidity Distress Factor, Performance
CITATION: Chibole, K. W., Maniagi, M. G., & Nelima, M. L. (2022). Influence of liquidity distress factor on performance of commercial banks in Kenya. The Strategic Journal of Business & Change Management, 9 (4), 618 – 632.
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DOI: http://dx.doi.org/10.61426/sjbcm.v9i4.2436
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