An evaluation of the effects of internal banking factors on profitability of commercial banks in Kenya
Wainaina, Charles Maina
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The overall profitability of the banking sector in Kenya has improved tremendously over the last 10 years and the sector has also experienced rapid expansion in the recent past which resulted to intensive competition by providing innovative products, efficient management in the resources allocation and saving money. However, despite the overall good picture depicted by the sector, critical analysis indicates that not all banks are profitable. For example the small and medium financial institutions which constitute about 57 % of the banking sector posted a combined loss before tax, ofKsh 0.09 billion in 2009 compared to a profit before tax of Ksh 49.01 billion posted by the big financial institutions (CBK, 2009). The huge profitability enjoyed by the large banks vis-a-avis the small and medium banks indicates that there are some significant factors that influence the profitability of commercial banks (Tobias et aI, 2011). The objective of this study was to examine the impact of banks' internal factors on profitability of commercial banks in Kenya. A total of nine commercial banks listed at the Nairobi Stock Exchange formed the sample of this study. The selected banks were assessed by ratio analysis such as Profitability, Asset management, and efficiency ratios hence by making the type of the research conducted Quantitative in nature. The data was collected from audited and published financial statements of the individual bank over a period of five years starting from year 2006 to 2010. Panel data regression was used to analyze and to examine the effects of internal banking factors on the financial performance of Kenyan commercial banks.