Bank Size and Financial Performance of Commercial Banks in Kenya
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Date
2023
Authors
Muhindi, Kibet Alex
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
The financial performance of commercial banks is important to the stability the Kenyan
economy. However, some commercial banks experienced declining financial results in the
year 2015-2019 for example the declining Return on equity of Equity bank from 47.2%-
37.2%, Absa Bank 30.4%-26.4% and Stanbic bank 25.1%-21.2% and the Bank of India
20.15%-18.0%. Over the same period, the collapse of Chase bank, Imperial bank, Dubai
bank and the poor performance of National bank of Kenya was generally attributed to poor
financial performance. Bank size have long been linked to financial performance; However,
there has not been a consensus amongst empirical studies on the effect of bank size variables
including the total net asset, the bank capital and customer deposits on financial performance
of banks. The general objective of the research report was to establish the effect of bank size
on financial performance of commercial banks in Kenya. The specific objectives of the study
were; To evaluate the effect of the customer deposits on financial performance of
commercial banks in Kenya, to elaborate the effect of total net assets on financial
performance of commercial banks in Kenya and to determine the effect of bank capital on
financial performance of commercial banks in Kenya. The research additionally considered
the moderating effect of Gross Domestic growth rate on the relationship between bank size
and financial performance of commercial banks in Kenya. The financial performance
measured by use of return on equity was the dependent variable. The study was anchored on
theory of economies of scale, financial intermediation theory, stakeholders’ theory and
modern portfolio theory. The research used descriptive survey design. The target population
was all commercial banks in Kenya. A census of all commercial banks in Kenya was carried
out. The study utilized secondary data from financial reports as published by central bank of
Kenya and Kenya National Bureau of Statistics for the period between 2015-2019.Various
diagnostic tests were carried out including; Normality, Multicollinearity, Heteroskedasticity
Autocorrelation and Stationarity of time series. Panel regressions analysis and Pearson’s
product moment correlation analysis were used for inferential analysis while means and
standard deviations were utilized for purposes of descriptive analysis. The regression result
of the study was that bank size had a positive effect on financial performance of banks. In
particular, the research found that, the customer deposit p=0.491; Total net asset p= 0.011,
Bank capital p= 0.034 and Gross domestic growth p= 0.000 had a statistically effect on
financial performance. The correlation analysis showed that there was a positive relationship
between Customer deposit, Bank capital and Total net asset on Return on equity of banks.
The study concludes the that banks that had huge customer deposits, huge bank capital and
huge net asset had a positive financial performance. The study recommends that policy
initiatives geared towards increasing the customer deposit, bank capital and the total net
assets of the commercial banks to be considered and shareholders or managers could also
adopt mixed strategies internally generated, fund raising or mergers and acquisitions. This
research was limited to this research only and hence further research need to be done for
other sectors in the Kenyan economy
Description
A Research Report Submitted in Partial Fulfillment of the Requirements for the Award of the Degree of Master of Business Administration Finance, School of Business, Kenyatta University, April 2023.
Keywords
Bank Size, Financial Performance, Commercial Banks, Kenya