Browsing by Author "Muriuki, Nicholas"

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    Revenue Diversification and Financial Performance of Commercial Banks, Kenya
    (Stratford Peer Reviewed Journals and Book Publishing (Journal of Finance and Accounting), 2024) Muriuki, Nicholas; Musau, Salome
    Financial intermediaries, providers of funds and primary depositors of savings are important to an economy. In Kenya, the banking sector has been facing challenges such as declining profitability since 2015, with a brief uptick in 2019 that was halted by the COVID-19 pandemic. Banks in Kenya proactively set aside funds to cover potentially risky loans in 2020, reevaluating their asset quality due to the unprecedented uncertainty caused by the pandemic, which put the international financial reporting standard (IFRS) 9 for projected credit loss provisioning to the test. The Kenyan banking sector must overcome various challenges, including economic downturns, illiquid stock markets, and other macroeconomic and bank-specific issues, despite demonstrating resilience and stability with robust capital and liquidity ratios in 2022. Thus this research investigated the effect of income diversification on financial performance of commercial banks in Kenya. Specifically, this research assessed the effect of fees and commissions, dividend income, foreign currency trading and transaction fee revenue on the financial performance of commercial banks in Kenya. The research was based on agency theory, portfolio theory and financial intermediation theory. The sample included 38 commercial banks selected from the years 2019 to 2023, and the research used a census sampling method to gather data from the whole population of these banks in Kenya. The study employed an explanatory research design, utilizing descriptive statistics such as mean and standard deviation, as well as inferential statistical tools like panel multiple regression analysis and Pearson correlation analysis, while various diagnostic tests, including multicollinearity, normalcy, linearity, homoscedasticity, Houseman test, and autocorrelation tests, were conducted to validate the model's predictions. The study found that fees and commission income had a positive and statistically significant relationship with the return on assets (ROA) of commercial banks in Kenya (β=3.085506, p=0.000), and dividend income also showed a strong and statistically significant correlation with ROA (β=1.939443, p=0.000). The p-value for foreign exchange trading income was 0.0050, indicating that it significantly affects the financial performance of commercial banks in Kenya. Furthermore, the p-value for transaction fee income was 0.0240, suggesting that commercial banks in Kenya heavily rely on cash from transaction fees to fund their operations. In conclusion, the research determined that there is a significant positive relationship between fees and commissions, dividend income, foreign exchange trading income, and transaction fee income on the financial performance of commercial banks in Kenya. The study recommended that commercial banks need to review transaction rates from time to time to ensure that they derive maximum income from loans. Further, banks need to participate in the securities market by trading in shares and other investment vehicles to expand their revenue base. Banks can diversify their investment options and focus on foreign exchange trading income since it improves their performance.
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    Revenue Diversification and Financial Performance of Commercial Banks, Kenya
    (Kenyatta University, 2024-09) Muriuki, Nicholas
    Financial intermediaries, providers of funds, and primary depositors of savings are important to the economy. The introduction of diversification had an adverse effect on both the creation of bank liquidity and bank profitability. The low level of profitability discourages depositors and shareholders from engaging with underperforming banks due to concerns about their ability to meet liquidity demands and generate adequate returns. Consequently, banks face challenges in obtaining sufficient financing to carry out their operations, leading to liquidity issues, bank panic, and ultimately collapse. This research aimed to investigate the effect of income diversification on the financial performance of commercial banks in Kenya. This research aimed to assess the effect of fees and commissions, dividend income, foreign currency trading, and transaction fee revenue on the financial performance of commercial banks in Kenya. The research was based on agency theory, portfolio theory, and financial intermediation theory. The sample will include 38 commercial banks selected from the years 2019 to 2023. The research used a census sampling method to gather data from the whole population of 38 commercial banks in Kenya. The study used an explanatory research design. Descriptive statistics such as the mean and standard deviation were applied in the analysis. Also inferential statistical tool of panel multiple regression analysis and Pearson correlation analysis were used. Diagnostic tests will be used to validate the model's predictions. Various diagnostic tests, such as multicollinearity, normalcy, linearity, homoscedasticity, Houseman test, and autocorrelation tests, were conducted. The results demonstrated a clear and substantial correlation between fees and commissions and return on assets (ROA).The research also discovered a strong and meaningful correlation between dividend income and return on assets (ROA). Furthermore, it has been shown that there is a strong and positive correlation between foreign currency trading revenue and the return on investment (RO). In conclusion, the research determined that there is a strong and positive correlation between transaction fee revenue and return on assets (ROA). The research determined that fees and commissions, dividend income, foreign currency trading revenue, and transaction fees income had a favorable and substantial impact on the financial performance of commercial banks. The study recommended that commercial banks need to review transaction rates from time to time to ensure that they derive maximum income from loans. Further, banks need to participate in the securities market by trading in shares and other investment vehicles to expand their revenue base. Banks can diversify their investment options and focus on foreign exchange trading income since it improves their performance.