Bank characteristics and financial performance of Commercial banks listed at the Nairobi securities Exchange in Kenya
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Date
2024-06
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Publisher
Kenyatta University
Abstract
Commercial banks in Kenya have recently experienced a steady downturn in their financial performance, mostly as a result of strict regulatory requirements and a changing business environment. The subpar financial performance of numerous lowertier banks has resulted in significant consequences, including the necessity of placing some of these banks under receivership. The purpose of this study was to look into how various factors affected the financial performance of commercial banks listed on the Nairobi Securities market. In order to assess financial performance, the ROE were employed as the dependent variable and the CAMEL banking model as the independent variable. In particular, this study looked to see how financial performance was impacted by asset quality, liquidity management, capital sufficiency, and managerial effectiveness. The information sharing theory and the portfolio theory for liquidity management serve as the study's theoretical foundations. All 11 commercial banks listed on the NSE were included in the population sample for this study. The study employed a descriptive methodology, which was well-suited for investigating variables that impact bank profitability in Kenya. Through this research, the goal was to gain a deeper understanding of the factors that are most significant in promoting the success of businesses in their environment. As a result of the data collected, analysts were able to determine the extent to which various factors affect the performance of individual banks. This panel data model established a causal relationship between the features of commercial banks and its financial performance in the NSE. The survey included data from each of the twelve listed commercial banks. A data extraction form was utilized to glean financial information from commercial banks' and the CBK's annual reports for the present research. The research exhibited that the financial performance of commercial banks listed on the Nairobi Securities Exchange is significantly influenced by the quality of their assets. Furthermore, the study revealed a positive and statistically significant impact of liquidity on the financial performance of Kenyan commercial banks listed on the Nairobi Securities Exchange. Additionally, research has indicated a beneficial and statistically significant relationship between appropriate capital and financial performance. These findings conclusively established a significant and positive association between financial performance and effective management. Thus, this study provides substantial evidence of the correlation between asset quality and the financial success of commercial banks in Kenya. Additionally, managing liquidity has a significant and advantageous impact on the financial performance of Kenyan commercial banks, as highlighted by the study's findings. Moreover, the research underscores a strong and statistically significant correlation between the financial performance of Kenyan commercial banks and their level of capital adequacy. Ultimately, the study's conclusions emphasized the significance of management efficiency in determining the financial success of commercial banks in Kenya. The study comes to the conclusion that the central bank should closely monitor the banks' liquidity ratios in its capacity as a regulator. The study further suggests that commercial banks should actively seek opportunities to improve their internal capabilities in effectively managing asset quality. Commercial banks, particularly those that are locally owned, are obligated to explore strategies for mitigating market risks. This may involve the utilization of financial derivatives and asset securitization, which can contribute to the improvement of their asset quality
Description
A research project submitted to the School of Business, Economics and Tourism in partial fulfilment of the requirements for the award of degree of Master of Business Administration in Finance of Kenyatta University. June 2024
Supervisor
Dr. Fredrick W.S. Ndede,