Intellectual Capital Efficiency and Financial Performance of Commercial Banks in Kenya
Kagotho, Judith Njoki
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In the globalized and knowledge-based economy, banks need to develop, manage and monitor their soft assets or intellectual capital (IC) to enhance their performance and competitiveness. Kenya’s banking sector remain resilient and stable, despite the shocks including interest rate capping. The sector continued to grow in terms of inclusiveness and efficiency supported by legal, regulatory and supervisory reforms and initiatives. The financial performance of commercial banks has been fluctuating over the years as measured by return on assets, return on equity and net profit margin. This study sought to establish the relationship between intellectual capital efficiency and financial performance of commercial banks in Kenya. The study was guided by the following objectives; to determine the effect of relational capital, financial innovativeness, structural capital efficiency and human capital efficiency on financial performance of commercial banks. The study employed descriptive as well as correlation research designs. The target population for this study was all the commercial banks in Kenya as at December 2015, which are 42 in total. The study used census approach to pick all the 42 commercial banks in Kenya. Primary data was obtained using self-administered questionnaires. Regarding the data collection, the research obtained absolute secondary data from commercial banks' audited financial statements, banks administrative report and from the Central Bank of Kenya. The study used data analysis software (Microsoft Excel and SPSS version 22) to analyse the data. Given that the study model is multivariate and descriptive in nature, the study used multiple regression technique in analysing the relationship between independent variables and the financial performance of commercial banks in Kenya. The study concluded that relational capital had a significant influence on the financial performance of commercial banks; most of the banks had made tremendous investment in relational capital in the last five years. It was concluded that financial innovativeness had a positive influence on financial performance of financial institutions in Kenya. Also, structural capital had a positive influence on financial performance of commercial banks and finally that investment in human capital had a positive influence on financial performance of commercial banks. It was recommended that financial institution amplify organisational net worth in life and business, improvements in structural capital should be facilitated through application of modern technology and innovative operational strategies. More investments should be done through establishing new products and financial institutions should have a strong human resource strategic management plan that conceptualises on human capital. The study variables (relational capital, financial innovativeness, structural capital and human capital) accounted for 80.3 percent changes in financial performance of commercial banks. This study proposed that another study can be done on the other variable that accounts for 19.7% of financial performance of commercial banks.