The Determinants of financial performance of commercial banks
Date
2022
Authors
Mainya, Stephanie
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
The main goal of every banking institution is to operate profitably to maintain stability and sustainable growth. External and internal economic environments are viewed as critical drivers for bank performance. The main purpose of this study was analyzing the determinants of financial performance of commercial banks in Kenya for a period of 5 years, starting from the year 2016 to 2020. The dependent variable under investigation was return on assets (ROA). The independent variables were Capital Adequacy, Asset Quality, Management Efficiency, Earnings Ability and Liquidity. The specific objectives of this research were to assess the relationship between capital adequacy and the financial performance of commercial banks in Kenya, to evaluate the relationship between asset quality and financial performance of commercial banks in Kenya, to establish the relationship between management efficiency and financial performance of commercial banks in Kenya, to examine the relationship between earnings ability and financial performance of commercial banks in Kenya and to evaluate the relationship between liquidity and financial performance of commercial banks in Kenya. The choice of this five-year period was based on the explosive growth of the banking sector in the country and the availability of complete data for that period. The study concentrated on the bank specific factors that affect the banks’ financial performance. In this research, the scope was all the eleven banks listed in the Nairobi securities exchange. This study adopted a descriptive research design to meet its research objectives by using panel data to fulfill the objectives. The researcher collected data on published financial statements of the eleven commercial banks listed in the Nairobi securities exchange for five years from 2016 to 2020. Data was analyzed using multiple linear regression models to show the effect of bank specific factors on financial performance of commercial banks over that period under study. The findings were presented in tables and narratives. The results showed that there was positive/negative and significant association between ROA and all the independent factors. There was a finding that earnings ability affects profitability and the financial performance of banks. The study concludes that earnings ability of the bank has the highest influence on ROA of banks. The study recommends that bank capitalization should be encouraged in all commercial banks and other financial institutions so that performance can be enhanced.
Description
A Research Project Submitted in partial fulfillment of the requirements for the Degree of Bachelor of Commerce at Strathmore University