DETERMINANTS OF FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA: CASE OF LISTED BANKS ON THE NAIROBI SECURITIES EXCHANGE (NSE)
Abstract
Kenya’s banking environment is going through consolidation evidenced by the heightened mergers and acquisitions activities over the past years. Financial inclusion in Kenya has continued to rise, with the percentage of the population living within 3 kilometers of a financial services access point rising to 77.0% in 2016 from 59.0% in 2013. Despite great milestones that commercial banks have made in the past, they have also gone through turbulent times. This study was designed to examine the determinants affecting financial performance of listed commercial banks in Kenya with specific objectives on the effect of liquidity, capital adequacy, operational expense and leverage on performance of banks in Kenya. The research methodology adopted by the study was descriptive research design. The population of study was 244 bank staff in the finance and operations departments from 11 listed commercial bank licensed to operate in Kenya as at 31st December 2016. A representative sample of 71 respondents was drawn from the population. All the listed commercial banks formed the sampling frame. Census technique was used because of the small number in population. Descriptive analysis, correlation analysis and regression analysis were used to perform the data analysis. The study found out that all the independent variables; liquidity, capital adequacy, operational expense and leverage had a significant influence on financial performance of listed commercial banks in Kenya. Leverage had the highest significant positive influence on financial performance of commercial banks. The study thus recommended that managers of listed commercial banks should go for an aggressive credit policy to maximize the use of debt in capital spending activity to improve the financial performance of the firm. Further studies should consider other external/macroeconomic determinants of financial performance such as taxation and prudential regulation, which include interest rate capping, inflation rate and GDP growth rate.
Key Words: Liquidity, Capital Adequacy, Operational Expense, Leverage
CITATION: Nalianya, S. N., & Miroga, J. (2020). Determinants of financial performance of commercial banks in Kenya: Case of listed banks on the Nairobi Securities Exchange (NSE). The Strategic Journal of Business & Change Management, 7(3), 880 – 897.
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DOI: http://dx.doi.org/10.61426/sjbcm.v7i3.1714
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