Liquidity Capacity and Financial Performance of Commercial Banks in Kenya
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Date
2023-06-12
Authors
Kiage, Job Abuga
Wamugo, Lucy
Makori, Daniel
Journal Title
Journal ISSN
Volume Title
Publisher
IPRJB
Abstract
Purpose: The objective of the study was to assess
the impact of liquidity capacity on the financial
performance of commercial banks in Kenya.
Methodology: This study employed the explanatory
research design. The 42 Kenyan commercial banks
were the study's target population. The essential
financial data for analysis was extracted and
compiled using a data collection routine from the
yearly reports. Panel data was mined from 42
commercial banks for six years between 2012 and
2018. The data were assessed by employing
descriptive statistics as well as inferential statistics.
Descriptive statistics employed involved the
standard deviation, median, and average. Inferential
statistics used involved panel regression. The data
analysis was aided by STATA software.
Findings: The findings from the regression analysis
indicate that Net Stable Funding and Liquidity
Coverage exert a significant positive impact on the
financial performance of commercial banks in
Kenya. Conversely, provisioning for NonPerforming Loans, Liquidity Gap, and Provisioning
for Nonperforming Loans demonstrate a notable
negative effect on the financial performance of
commercial banks in the country. Moreover, the
study reveals that bank competition plays a
significant moderating role in the relationship
between liquidity capacity and the financial
performance of commercial banks in Kenya.
Unique Contribution to Theory, Practice and
Policy: The study was anchored on Anticipated
Income Theory and Liquidity Preference Theory.
The study recommended that the regulatory body for
commercial banks, the CBK, facilitates open
channels of communication between policy makers
and senior management of commercial banks in
Kenya. This discussion is critical to ensuring that the
monetary policies developed are practical and
beneficial to the expansion of the commercial
banking industry. Lastly, the study suggests that all
commercial banks in Kenya integrate considerations
of liquidity costs, benefits, and risks into their
performance measurement, pricing, and approval
processes for significant business activities.
Description
Article
Keywords
Commercial Banks, Financial Performance, Liquidity Capacity
Citation
Abuga, K., Wamugo, L. ., & Makori, D. (2023). Liquidity Capacity and Financial Performance of Commercial Banks in Kenya.International Journal of Finance and Accounting,8(1), 76–96. https://doi.org/10.47604/ijfa.2003