Maina, Stephen Muthoga2019-10-112019-10-112019-07http://ir-library.ku.ac.ke/handle/123456789/19775A Research Project Submitted in Partial Fulfillment of the Requirements for the Award of the Degree of Master of Business Administration (Finance Option), Kenyatta University. July, 2019Globally, banks play important roles in the economy of countries. These banks channel funds from surplus units to deficit units for consumption and investment purposes. However, financial intermediation role of banks is not without its challenges, this banks have the fundamental role in short term deposits maturity transformation to long-term loans which makes them prone to liquidity risks. Liquidity risk is inherent activities of commercial banks due to the nature of their operations. ROE in 2010, 2011,2012,2013,2014 and 2015 was 25.98%, 23.10%, 21.99%, 20.94% and 20.88% respectively. Also, the ROE declined to 17.39% in 2015 thus showing a downward trend in the profitability of the commercial banks listed at the Nairobi Securities Exchange. The research sought to ascertain liquidity risk effect on profitability of listed commercial banks at the Nairobi Securities Exchange, Kenya which is the general objective. In line with this, the specific objective was to evaluate the effect of net loan holdings, asset quality and liquid assets holdings on profitability of listed commercial banks at the Nairobi Securities Exchange, Kenya. The study was anchored on Liquidity Preference Theory, Shift Ability Theory and Financial Intermediation Theory to provide underpinning for the research. The research adopted causal research design where the study population comprised all the 11 listed commercial banks at the Nairobi Securities Exchange, Kenya as at December 2018. The research used descriptive analysis and panel regression analysis for the data analysis. The panel regression analysis indicated that net loans holdings have a negative and significant effect on the profitability of commercial banks. Similarly, with respect to asset quality and profitability of commercial banks, the regression output revealed that the effect of asset quality on profitability is negative and significant. On the effect of liquid assets holdings on profitability of commercial banks, the findings from the regression output indicated an inverse and significant effect of liquid assets holdings on profitability of commercial banks Listed at the Nairobi Securities Exchange, Kenya. The study recommends that banks should avoid having a large proportion or too much of their total assets in the long-term loans as this makes the banks illiquid, thereby hampering its profitability level. Also, the study recommends that proper credit risk management practices be put in place by banks. This is because poor credit risk practices are responsible for high levels of non-performing loans which ultimately and adversely affect the profits of commercial banks. Lastly, also, the study recommends that banks hold more liquid assets in periods of poor economic conditions. It is therefore advisable for bank’s management to pay the required attention to the liquidity management. Further studies should be carried out to include commercial banks not listed at the Nairobi Securities Exchange to establish whether they will have the same findings as those banks listed at the Nairobi Securities ExchangeenThesis