Lucy WamugoKipchoge, Mercy Jerono2023-02-222023-02-222022http://ir-library.ku.ac.ke/handle/123456789/24827A Research Project Submitted to the School of Business in Partial Fulfillment of the Requirement for an Award of the Degree of Master of Business Administration (Finance Option) Kenyatta University,November, 2022Globally, commercial banks are vital financial intermediaries because they have the ability to offer different financial services needed for effective operation of the economy. Prudential regulations are issued by the Central Bank of Kenya with the purpose of ensuring a sound and stable financial system. Over last eight years, commercial banksshave been facing poor financial performance as shown by declining profitability. This study sought to assess the effect of prudential regulation on financial performance of Commercial Banks in Kenya. Specifically, the research investigated the effect of liquidity regulation, credit risk regulation, capital adequacy regulation, and foreign exchange regulation on commercial banks’ financial performance. The study was anchored on Capital Buffer Theory, Market Power Theory and Agency Theory. The study used an explanatory research design and targeted all the 42 commercial banks. Census approach was used and hence all the 42 commercial banks were included in the study. The study used secondary data obtained from Audited commercial banks’ financial statements and from Central Bank of Kenya for 6 years between 2013 and 2018. Panel data was utilized and was then analysed using panel regression and descriptive analysis. Descriptive statistics included, mean, standard deviation, minimum and maximum. The study found liquidity regulations had an inverse and significant effect on financial performance of Commercial Banks in Kenya. In addition, credit risk regulations had an inverse and significant effect on financial performance of Commercial Banks in Kenya. In addition, capital adequacy regulations have positive and insignificant effect on financial performance of Commercial Banks in Kenya. Also, foreign exchange regulations have a positive and insignificant effect on financial performance of Commercial Banks in Kenya. The study recommends that the policy makers through the central bank of Kenya should review and improve on the liquidity regulation of commercial banks in Kenya. This will in turn facilitate meeting of customers’ withdrawal demands and short term obligations while improving the commercial banks’ financial performance. In addition, managers in commercial banks should ensure that total loans to total deposits ratio remains low as a way of ensuring that their institutions are able to make monthly obligations. In addition, policy makers through the central bank of Kenya should ensure that credit risk regulations are tightened to ensure judicious utilization of usable and loanable funds by commercial banks which further increases rate of recovered loans from customers and hence, guaranteeing maximum commercial banks’ financial performance. Credit managers in commercial banks in Kenya should come up with strategies to reduce non-performing loans. Some of these strategies include making the credit approval process more strict.enPrudential RegulationsFinancial PerformanceCommercial BanksKenyaThesis