The influence of bank stability on the financial performance of listed commercial banks in Kenya
Date
2020
Authors
Oduor, Robert Otieno
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
The commercial banking industry is a critical nerve centre to the economic growth and
development of a country. However, since the financial crisis of 2008 many Kenyan
commercial banks have been reeling from the aftershock. This has largely affected their
financial stability leading to continuous financial losses and falling of some lenders. However,
despite this there has been limited empirical examination of the effect of bank stability on the
financial performance of commercial banks in Kenya. The study measured financial stability
using capital adequacy, asset quality, management efficiency and liquidity level. The study was
grounded on the information sharing theory, the shareholder value maximization theory and
the shiftability theory of liquidity. The study adopted a descriptive research design. The
population for the study was the 11 listed commercial banks in operation with the 2 commercial
banks under receivership being excluded in the sampling procedures. The study further adopted
a stratified sampling of the 11-listed commercial banks. The study relied on secondary data
that was collected for the period 2008-2017. The collected data was analyzed using descriptive
analysis, correlation analysis and regression analysis. The study further employed the
collinearity, normality and autocorrelation tests to examine the linear regression assumptions.
The results of the study were presented using figures, tables and other infographics. The study
was able to obtain 98% of the observations from the 11-listed commercial banks. The
regression results indicated that the capital adequacy had a weak positive effect on the financial
performance while asset quality had a strong positive effect. The results of the study further
indicated that management efficiency had strong positive effect on financial performance
liquidity had a weak positive effect. The study concludes that listed commercial banks should
foster their core capital, enhance their loan portfolio, lower their net interest expenses and hold
sufficient liquid assets. The findings of the study are expected to enhance policy formulation
as well as banking practice within the Kenyan industry. The results will further supplement the
knowledge gap on the issues of bank stability and financial performance within the country.
Description
A Thesis submitted in partial fulfillment of the requirements for the award of the Degree of Masters of Business Administration at Strathmore University Business School
Keywords
Banking industry, Economic growth, Financial performance