The Determinants Of 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 of financial performance of commercial banks listed in Nairobi Securities Exchange (NSE). The study was supported by the following specific objectives: to establish the influence of deposits on financial performance of commercial banks listed in Nairobi securities exchange, to determine the influence of capital adequacy on the financial performance of commercial banks listed in NSE, to examine the influence of liquidity on financial performance of commercial banks listed in NSE and to investigate the effect of loans on financial performance of commercial banks listed in NSE. The target population for the study was all the eleven (11) commercial banks listed in NSE covering a period of ten years from 2007 to 2017 and thus a survey design of the eleven commercial banks listed NSE was undertaken. Secondary data was obtained from published financial statements from commercial banks listed in NSE 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 study also used correlation coefficients to test the null hypothesis. The finding of the study illustrated that the relationship between Deposits and Return on Equity (ROE) was positive and significant. The study found out that the relationship between capital adequacy and ROE was insignificant. Furthermore, the study findings also revealed that the relationship between liquidity and ROE was statistically insignificant. From the study findings, the relationship between loans and ROE was found to be statistically significant. The study concluded that management of commercial banks should embark at attracting, growing and retaining deposits and also maintain a 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 ratio requirements so as not to attract costly penalties from the regulator.