Effect of Cash Reserves on Performance of Commercial Banks in Kenya: A Comparative Study between National Bank and Equity Bank Kenya Limited

Aloys Jared Oganda,Vitalis Abuga Mogwambo,Simeyo Otieno

doi:10.6007/ijarbss/v8-i9/4648

Aloys Jared Oganda, Vitalis Abuga Mogwambo + Show 1 more

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https://doi.org/10.6007/ijarbss/v8-i9/4648

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Abstract

Effect of Cash Reserves on Performance of Commercial Banks in Kenya: A Comparative Study between National Bank and Equity Bank Kenya Limited

Highlights

The banking sector plays a critical role in the development process and is expected to drive high levels of savings and financing of Kenya’s investment needs
Despite Equity bank having had an improvement in NIM from 10.6% in 2015 to 11.1% in 2016, ROE reduced from 25.5% in 2015 to 21.5% in 2016 while ROA declined to 3.7% in 2016 from 4.5% in 2016 (Cytonn Investments report, 2017).These banks are exposed to liquidity related risks and inadequate framework to support the banking business
The findings of this study indicate that there is significant relationship between liquidity and profitability, meaning that profitability of commercial banks is significantly influenced by liquidity

Summary

Introduction

The banking sector plays a critical role in the development process and is expected to drive high levels of savings and financing of Kenya’s investment needs. National Bank is experiencing liquidity challenges and despite the government ownership of 70.55% (22.5%, Treasury and 48.05%, NSSF), it has the highest cost to Income ratio at 64.6% against the industry average of 47.1% and the largest NPLs to loans at 42.1% against the industry average of 10.6%, with one of lowest NPL coverages at 18.1% against the industry average of 35.4% (Cytonn Investments report, 2016). Despite Equity bank having had an improvement in NIM from 10.6% in 2015 to 11.1% in 2016, ROE reduced from 25.5% in 2015 to 21.5% in 2016 while ROA declined to 3.7% in 2016 from 4.5% in 2016 (Cytonn Investments report, 2017).These banks are exposed to liquidity related risks and inadequate framework to support the banking business. This study sought to close the gaps by providing a deeper understanding of the effect of liquidity risk management on the performance of commercial banks in Kenya using a comparative analysis approach

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Conclusion