Abstract:
Financial instruments are used on a wider scale mainly due to the global financial crisis. These
tools have played a central role in averting financial risks in many countries for a long time. The
banking sector’ earnings fell drastically in 2020. ROA was 2.0% in year 2020 while in 2019 it was
3.2%. Such decline was contributed by: an increase in loan loss provisions, decline in asset quality
and interest rate cuts (SBI, 2021). In principle, this study assessed how financial instruments and
performance of listed banks in NSE as moderated by inflation rates. The specific objectives of this
study were; to determine the effect of equity securities on financial performance of Commercial
banks listed in Nairobi Securities Exchange, to determine the effect of debt securities on financial
performance of Commercial banks listed in Nairobi Securities Exchange. To determine the effect
of bonds on financial performance of Commercial banks listed in Nairobi Securities Exchange and
to determine the moderating role of inflation rates on the relationship between financial
instruments and financial performance of Commercial banks listed in Nairobi Securities Exchange.
It was supported by the trade-off theory, pecking order theory and preferred habitat theory. The
study utilized a descriptive design. The population comprised 11 Commercial banks listed on the
Nairobi Security Exchange. This study also embraced simple random sampling techniques to pick
a sample size of 10 listed commercial banks. Second hand data was gathered by a sheet from
financial reports for 10 years from 2011-2020. Descriptive statistical techniques like standard
deviation, maximum, minimum and mean and, inferential statistical methods such as correlation
and panel data regression analysis were utilized to process. The findings were presented in figures
and tables. It was identified that equity securities had a positive and significant interrelationship
with financial performance of Commercial banks listed at NSE. It was concluded that, debt
securities had a positive and significant correlation on performance of listed Commercial banks in
Nairobi Securities Exchange. It was recommended that listed Commercial banks at Nairobi
Securities Exchange ought to invest more on bonds. Bonds issuance by the government is used
whenever it wants to raise money at a risk-free rate. Investment in bonds ensures that they receive
periodic interest payment until maturity when the principal amount is to be paid. This will enhance
their financial performance by improving their profits and cash flows.
