Central Bank of Kenya Regulations and Financial Performance of Commercial Banks in Kenya
i Mathenge, Celestine Wangu
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The Vision 2030 for Kenya advocates for triple pillars in the financial sector which include stability, access to all financial services and efficiency. Therefore, for nation to realize the vision 2030, it must be realized that the banking sector plays a very vital function in stimulating economic development and hence it should be well regulated. Hence, the aim of this study was to assess the effect that Central Bank of Kenya regulations have on financial performance of commercial banks in Kenya. The paper specifically focused on the effects of credit risk management regulation, capital requirement, liquidity management regulation, corporate governance and the moderating effect of bank size on financial performance of commercial banks in Kenya. The research problem was that, despite CBK regulations review in 2013 for performance improvement, some banks such as Chase bank, Imperial and CFC stanbic encountered financial problem in the year 2015 and 2016. In addition, National bank registered a loss of 1.2 Billion in the year 2015 while on the other hand, banks such as KCB and Cooperative had shown a positive performance since the review of regulation in the year 2013.Descriptive research design was used in the study and the target population comprised of forty two commercial banks as at December 2017. The study relied on secondary data which was collected from the recently published annual financial statement as well as from the supervision records for banks from CBK for the year 2012 to 2017.In data analysis, statistical package for social sciences (SPSS) was employed to compute statistics and analyze quantitative data. The findings of the study indicated that credit risk management had a positive and insignificant effect on performance of commercial banks while capital requirement had significant negative effect. Liquidity management had a significant positive relationship while, corporate governance had an insignificant positive effect. The moderating variable bank size had a significant moderating effect between CBK regulations and CB financial performance relationship in Kenya. The multiple regression analysis results indicated that variations in CBK regulations explain about 31.6% of the variations on performance of commercial banks in Kenya. Based on the research findings, commercial banks should put in place in place effective credit risk management techniques to reduce default risk and to enhance their assets quality since assets quality enhance commercial banks performance.