THE DETERMINANTS INFLUENCING FINANCIAL PERFORMANCE OF COMMERCIAL BANKS LISTED IN NAIROBI SECURITIES EXCHANGE
Abstract
The intermediation role of commercial banks is bound by the extent to which its key business performance drivers are manipulated to improve on financial performance and thus the study examined the determinants influencing financial performance of commercial banks listed in NSE. The study was supported by the following specific objectives: to establish the influence of volume of deposits on financial performance of commercial banks listed in Nairobi securities exchange, to determine the influence of capital adequacy on financial performance of commercial banks listed in NSE, to examine the influence of levels of liquidity of on financial performance of commercial banks listed in NSE and to investigate the effect of the volume of loans of on financial performance of commercial banks listed in NSE. The target population for the study was all the eleven commercial banks listed in NSE covering a period of twelve years from 2005 to 2017 and thus a survey design of the eleven commercial banks listed NSE was undertaken. Secondary data obtained from published financial statements from commercial banks and annual banking supervision reports from CBK was used in the study. The study used descriptive research design to investigate the relationships between variables by use of mean, standard deviation, maximum and minimum values. Also the study used correlation analysis to evaluate the association between the independent variables and the dependent variables. Furthermore, the study used multiple regression model to examine the strength of the relationship between the dependent and the independent variables. The finding of the study illustrated that the relationship between Deposits and ROA was positive and significant. Also the relationship between deposits and ROE was established to be positive and significant. The study found out that the relationship between capital adequacy and both ROA and ROE was insignificant. Also, the study findings revealed that the relationship between liquidity and both ROA and ROE was statistically insignificant. The findings of the study indicated that, the relationship between loans and ROA was positive and significant at 0.01 levels while the relationship between loans and ROE was also found to be positive and significant at 0.05 levels. The study concluded that management of commercial banks should institute sound policies aimed at attracting and retaining deposits besides growing of quality loan book so as to improve on financial performance. Furthermore the study concluded that commercial banks should strive to attain minimum statutory capital adequacy and liquidity requirements.
Downloads
References
Abdullah, M.N., & Jahan, N. (2014). The impact of liquidity on profitability of Bangladesh: A case study of Chittagong stock exchange. International journal of economics and business review. (2) 10:17-22
Adzobu, L. D., Agbloyor, E.K., & Abuagye, A. (2017). The effect of loan portfolio diversification on banks risks and return. Evidence from emerging markets. Managerial finance. (5) 43
Akuma,J.,Doku,I.,&Awer,N.(2017). Credit Risk, Deposit and profitability of Ghanian banks. International Journal of Economic & Finance issues. 7(5), 394-399.
Allen,F., Carletti,E.,Krahnen,Pieter,J., &Tyrell,M.(2011). Liquidity and crises. Oxford University Press. New York.
Almasiri,A.A.,&Alamiri,A.M.(2017). The effect of capital adequacy on profitability: A comparative study between Samba and Saab banks of Saudi Arabia. International journal for economics, commerce and management. (5) 11:86-102
Amahalu,N.,Okoye,E.I.,Nweze,C.,Chinere,O.,&Okika,C.(2017).Effect of capital adequacy on Financial Performance of Quoted Deposit Money Banks in Nigeria. International Conference on African Entrepreneurship and innovation for sustainable development. Chapter 57:841-862.
Andries,A.M.(2009). Theories regarding financial intermediation and financial intermediaries: A Survey. Fascicle of The faculty of Economics and Public Administration. (9) 2:254-261
Atavachi, B. (2013).Effect of Electronic Banking on Financial Performance of Deposit Taking Microfinance institutions in Kenya. University of Nairobi Publication http://chss.uonbi.ac.ke.
Aymen,M. & Moussa,B.(2013). Impact of capital on financial performance of banks- The case of Tunisia. Bank and bank systems. (8) 4:53-53
Badun,M.(2009).Financial Intermediation by banks and economic growth. A Review of empirical evidence. Institute of public finance, Zagreb. (33) 2:121-152.
Barus. J. (2017).Effect of capital adequacy on the financial performance of savings and credit Cooperative societies in Kenya. American Journal of Finance. (1) 4:2-12.
Bategeka, L.,&Okumu,L.J.(2010). Banking sector liberalization in Uganda process, results and Policy options. Economic policy research Centre, Uganda.
Belguith,H., & Bellouma,M.(2017).The impact of loan portfolio diversification on Tunisian Banks profitably. International journal of emerging research in management and Technology. (6) 6:35-45.
Blancard, G.C.(2010). Incidence of bank levy and bank market power. University of Paris 1 Panthéon-Sorbonne
Bollen, N.P.B (2006) “Mutual Fund Attributes and Investor Behaviour”, forthcoming. Journal of Financial and Quantitative Analysis. (2) 2:01-09.
Botoe,W.(2011). The impact of liquidity of commercial banks in Liberia. University of Nairobi.
Botos,K.(2016). Money creation in the modern economy. Public finance quarterly journals. (1) 4:442-457.
Britto,J. & Srinivasan,P.(2017). Analysis of financial performance of selected commercial banks in India. Theoretical economics letters. Banglore. India.
Camarate,J.,&Brickmann,S.(2017) A market place without boundaries. The future of Banking.A South African perspective. Pricewaterhousecoopers publication. Johannesburg.
Casu, B., Girardone, C., & Malyneux, P. (2016) Introduction to Banking, 2nd Ed. Pearso Education Publishers. England.
Central Bank of Kenya, (2014). Bank Supervision report: Kenyan banking Sector for the period ended December 2013.
Central Bank of Kenya, (2015). Bank Supervision report: Kenyan banking Sector for the period ended December 2014.
Central Bank of Kenya, (2016). Bank Supervision report: Kenyan banking Sector for the period ended December 2015.
Central Bank of Kenya, (2017). Bank Supervision report: Kenyan banking Sector for the period ended December 2016.
Cronje, & Atahau, A.D.R. (2015). Does size affect loan portfolio structure and performance of domestic-owned banks in Indonesia? Corporate ownership and control journal. (1) 13:389-400
Cytonn Investments Journal (2017). Kenya Listed commercial banks analysis. Consolidation and Prudence in a challenging operating environment. Nairobi.
Demiquenes, K. (2016). The effect of liquidity on financial performance. Evidence from Turkish retail industry. International journal of economics and finance. (8)4
Desta,T.S.(2016). Financial performance of the best African banks; Comparative analysisthrough CAMEL Rating.Journal of Accounting and Management.(6) 1:1-20.
Dilrangi.A., Udayarathna.R.,Pathiraja. M.,Madhubhashini.P.,& Bandara.D.(2018). The effect of level of deposits on financial performance-A study on listed commercial banks in Sri Lanka. University of Sri Jayewardenepura. Sri Lanka.
Dinc,Y. (2017). The effect of retail loans on bank profitability. A comparative empirical analysis. Istanbul Sabahaltin Zain University.
Edem,D.B.(2017). Liquidity management and performance of deposit money banks in Nigeria. International journal of economics and finance management sciences. (5) 3:146-161
Emanue,O. & Amahalu,N.(2017). Effect of capital adequacy on financial performance of quoted money banks in Nigeria. (1) 1.
Eyigege, A.I. (2018). The influence of financial leverage, customer deposits and capital adequacy on the financial sustainability of some selected Nigerian Micro finance banks. Global journals.
Gakpetor,E.D, Akomeaoh,E.,Musah,A., & Chamler,R. (2018). The impact of liquidity on performance of commercial banks in Ghana. Academic journal of economic studies. (4) 4:78-90
Gekara,M., &Osano,K.L(2018). Effect of government regulation on profitability of commercial banks in Kenya. The strategic journal of business and change management. (5) 1:916-945
Gorn,J.A.(2008). German banks in the global economy. Global pressures and public sector banking. Pitzer college publication Journal. (1) 9:1-104.
Gubbins,P.(2015). An overview of development and trends in Kenya’s retail financial landscape. Fsd, Kenya. http://fsdkenya.org/an-overview-of-developmens-and-trends-in-kenyas-
Hayes, A.F. (2013) Introduction to Mediation, Moderation, and Conditional Process Analysis: A Regression-Based Approach. Guilford Press. New York
Javarid,M.E. (2016). Bank specific macroeconomic determinants of bank profitability. Journal of management information. (3) 2.
Kalanidis, D. (2016). The impact of liquidity on bank profitability: Post crisis evidence from European banks. International Hellenic University. Thessaloniki-Greece.
Kana,K.M.(2017). Determinants of bank profitability. An empirical study of South African banks. University of South Africa.
Karnik,M.(2016). India’s banking sector in 5 charts. World Economic Forum. 1st ed. Quartz publication. India.
Kawshla, H.& Panditharathna, K. (2017). The factors affecting on bank profitability in Sri-lankan domestic commercial banks. (7) 2.
Kemboi, J. K. & Tarus, D. K. (2012). Macroeconomic Determinants of Stock MarketDevelopment in Emerging Markets: Evidence from Kenya. Research Journal of Financeand Accounting. (3) 5:57-68.
Kiiru,M.J. (2008). The effects of funding structure on the Financial Performance of Deposit Taking Micro Finance institutions in Kenya. University of Nairobi Publication.
Kirimi, E. (2015). The effect of lending interest rates on financial Performance of commercial banks in Kenya. University of Nairobi Publication.
Klazema, A. (2014). Introductory statistics course. Udemys Inc
Mahmud, A., & Datta, C.K. (2018). Impact of capital adequacy on profitability under Basel II accord: Evidence from commercial banks in Bangladesh. European journal of business and management. (10)8:48-58
Majakusi. J. (2012). Effect of liquidity management on the financial performance of commercial banks in Kenya. University of Nairobi.
Marozwa, G. (2015). Liquidity and bank performance. International business and economics research journal. (14) 3:452-462
Mashamba, T. (2018). The effect of Basel III liquidity regulation on banks profitability. Journal of governance and regulation. (7) 2:45-46.
McLeay,M.,Radia,A.,&Thomas,R.(2014). Money creation in the modern economy. Bank of England Quarterly Bulletin.
Mohajan, H.K. (2017). Two criteria for good measurement in research. Validity and Reliability. Annals of Spiru Haret University. (17) 3:58-82
Mugenda,A.,&Mugenda,M.(2003). Research Methods: Quantitative and Qualitative Approaches, ACTS Publishers, Nairobi.
Muiruri,J.K.&Macharia,N.J.(2016). Determinants of profitability of commercial banks in Kenya.University of Nairobi Publication.
Murerwa,C.B.(2015). Determinants of banks financial performance in developing economies: Evidence from Kenya Commercial banks. United States International University journal.
Mutua,R. (2013).Effects of mobile banking on the financial performance of commercial banks in Kenya,University of Nairobi Publication.
Mwangangi,K.A.(2013). Economic Performance Indicators and stock returns at the Nairobi Securities Exchange, University of Nairobi Press.
Nairobi Securities Exchange bulletin 2017. Board Diversity and inclusion.
Ngari,J. M. (2014). Effects of financial Innovations on the financial performance of commercialBanks in Kenya. University of Nairobi press.
Njeri,M.N. (2013).The effects of liquidity on the financial performance of deposit taking micro finance institutions in Kenya. University of Nairobi press.
Njeri,M.R.(2010). Impact of deposit taking on financial performance of microfinance institutionsin Kenya. University of Nairobi journal.
Njeru,M.D., Njeru,A.,Member,F.,&Tirimba,O.I.(2015). Effect of loan repayment of financialPerformance of deposit taking SACCOs in Mount Kenya region. International journalof innovation and applied studies. (10) 4:1238-1244.
Nzioki,S.(2009). The impact of capital adequacy on the financial performance of commercial banks quoted at the Nairobi stock exchange. University of Nairobi Press.
Okun,D.M. (2012). The effect of level of Deposits of Financial Performance of CommercialBanks in Kenya.University of Nairobi Publication.
Okungu,A.E.O.,Mule,R.K.,Nyongesa,D.,Aila.F.O.,Ogut.,A.S,Onchonga,D.M.,…Muchoki,M.M(2014).Effect of commercial banks loans on financial performance of savings and creditCo-operative societies in Kisumu, Kenya. Greener Journal of Economics and Accountancy.(3) 1:009-019.
Olagunju,A., Adeyanju,O.D, & Olabode,O.S.(2011). Liquidity management and commercial banks profitability in Nigeria. Research Journal of Finance and Accounting. (2) 7/8:24-38.
Olokoyo, F.O., Adetiloye, K.A,.& Ikpefan, O.A (2016). Banks intermediation role and industrialoutput in developing countries. Medwell journals. (11) 24:5838-5844.
Ongore,V.O.,& Kusa,G.B.(2013). Determinants of financial performance of commercial banksin Kenya. International Journal of Economics and Finance issues. (3)1:237-252.
Randall,W.L (2014).From the state theory of money to modern money theory: An alternative toeconomic orthodoxy. Levy Economics Institute of Bard College. Working Paper no.792.
Regngasamy.D. (2014). Impact of loan deposit ratio (LDR) on profitability. Panel evidence from commercial banks in Malaysia. Third International conference on global business and social sciences.G14 Mumbai conference.1 (1):19-21
Rodriquez, R.C. (2014).Determinants of commercial banks profitability in Mexico. Econo quantum journal. (12) 1:120-121
Saunders, M., Lewis, P. & Thornhill, A. (2012) “Research Methods for Business Students” 6th edition, Pearson Education Limited.
Song’e, H.K.(2015). The effect of liquidity management on the financial performance of DepositTaking Savings and Credit Cooperative Societies in Nairobi County. University ofNairobihttp://erepository.uonbi.ac.ke.
Stefancic,M.(2017). Troubles of the Italian banking system and the smothered hopes of Europe.European research institute on cooperatives and social enterprise. (3) 2:99-116.
Stovrag, A. (2017). Capital requirements and bank profitability. A comparison between the large Swedish banks and niche banks. International business school. 64:65
Sune, K. (2014). The accuracy of the Hausman Test in Panel Data: A Monte Carlo Study. Orebro University.
Tabak, B. M., & Cajueiro, D. O. (2011).The effects of loan portfolio concentration on Brazilian banks return and risks. Journal of banking and Finance. (11) 35:3065-3076.
Thiongo, P.K., Matata, K.,&Simiyu,A.(2016). Effect of Loan Portfolio Growth on Financial Performance of Commercial Banks in Kenya. Imperial Journal of Interdisciplinary Research (2)11:2113-2141.
Trujillo-Ponce, A. (2013). What determines the profitability of banks? Evidence from Spain.
Tuyishime,R., Memba,F., & Mbera,Z.(2015). The effects of deposit mobilization on FinancialPerformance of Commercial Banks in Rwanda; a case of equity bank Rwanda limited.International journal for small business and entrepreneurship. (3) 6:44-71.
Umoru. D., &Osemwegie.J. (2016). Capital adequacy and financial performance of banks inNigeria; Empirical evidence based on Fgls estimator. European Scientific Journal. (12)25:295-305.
Vaita,B.N.(2017). Effect of liquidity on financial performance of tier one listed commercial banks in Kenya. University of Nairobi.
Vianney, K.J.M. (2011). The relationship between regulation and financial performance of Rwandan Commercial banks. University of Nairobi.
Wanzenried, G., & Dietrich, A. (2009). What determines the profitability of commercial banks? New evidence from Switzerland.
Weber, A. (2017). Bank consolidation, Efficiency and Profitability in Italy. IMF WorkingPaper. (17) 175:1-23.
Yigermal,M.E.(2017). The determinants of private commercial banks profitability: In the case of selected Ethiopian private banks. International and organization. Journal of economics behavior. (1) 5:25-35.
Copyright (c) 2019 IJRDO - Journal of Business Management (ISSN: 2455-6661)
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Author(s) and co-author(s) jointly and severally represent and warrant that the Article is original with the author(s) and does not infringe any copyright or violate any other right of any third parties, and that the Article has not been published elsewhere. Author(s) agree to the terms that the IJRDO Journal will have the full right to remove the published article on any misconduct found in the published article.
