Shariah Banking and Financial Performance of Selected Commercial Banks in Kenya
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Date
2019
Authors
Ongera, Faith Kwamboka
Ndede, Fredrick W.S
Journal Title
Journal ISSN
Volume Title
Publisher
IJCAB Publishing Group
Abstract
Financial performance is important among banking institutions. The ability to reinvest
earnings and aggressively compete for the market share in the business environment is
determined by the level of profits. In recent past, Kenyan commercial banks financial
performance has declined due to a number of factors ranging from decline in PAT, interest
capping, increased competition and rise in non-performing loans. This has created a need for
income diversification where commercial banks are diversifying into shariah banking so as to
attract investors with an interest in shariah compliant products and services. The main
research objective was to investigate shariah compliant banking effects on the selected Kenyan
commercial banks in terms of financial performance. The independent variables employed in
the study were liquidity, efficiency and asset quality as determinants of financial performance
of commercial bank. There are major gaps in the financial performance literature regarding
shariah compliant banking. Minimal research studies have been carried on financial
performance comparison between commercial and shariah compliant banks in Kenya. In order
to achieve the research objectives, descriptive research approach was employed in the study.
A census study was carried out; secondary data from relevant central bank data will be used.
The population was the four commercial banks operating shariah banking in Kenya. Secondary
data from 2013 to 2017 was obtained from the central bank website and the audited financial
statements of the selected licensed commercial banks operating shariah banking in Kenya.
Data analysis was achieved through use of descriptive, correlation and regression methods.
Data was processed through Statistical Package for Social Science software (SPSS). Data was
analyzed using descriptive and inferential analysis and presented using charts and tables.
Ratio analysis and trend analysis was used in the study. The study aimed at using the
framework of innovation diffusion theory to suggest a model for adoption of shariah banking
in the Kenyan banking industry, modern portfolio theory to explain the importance of
diversified portfolio in the Banking Sector and Agency Theory. The study found commercial
banks’ performance was as a result of that Shariah banking ratio then by liquidity ratio,
efficiency ratio, asset ratio, and finally bank size. Bank size had a ratio of 0.0128, expense
management ratio 0.0131, efficiency ratio 0.0024, Asset quality 0.0006, liquidity ratio 0.0120
and sharia banking ratio was 0.0025. It was revealed by the research that commercial banks’
adoption of shariah banking positively influenced their financial performance. This research
recommends that same studies to be carried out in Africa’s Eastern part to compare since
shariah banking’ concentration is on the Asian and West Africa countries. The research
recommends that commercial banks management take advantage of its existing branch
networks to open shariah banking alongside its core business in tapping the potential new
clientele
Description
An Article Published in International Journal of Current Aspects
Keywords
Shariah Compliant Banking Ratio, Asset Quality, Commercial Banks’ Liquidity, Efficiency, Commercial Banks Performance
Citation
Ongera, F., & Ndede, F. (2019). Shariah Banking and Financial Performance of Selected Commercial Banks in Kenya. International Journal of Current Aspects, 3(VI), 50-66. https://doi.org/10.35942/ijcab.v3iVI.78