Performance Of Banks In Kenya Research Articles

Mobile Banking Services, Risk Management, Firm Characteristics, and Performance of Commercial Banks in Kenya

An increasing number of banks in Kenya are launching newer mobile banking platforms which has led to increase in competition in the banking sector, where each commercial bank is penetrating to ensure that they keep in their competitive perspective and attract more likely customers by bringing the services of mobile banking next to their doorsteps. However, it is not clear how characteristics of a firm and management of risks influence the relationship the services of mobile banking and performance of banks in Kenya. The main objective of this research was to find out the relationships among the services of mobile banking, management of risks, characteristics of firms and performance of banks in Kenya. The specific objectives were: to evaluate the effect of mobile banking services on performance of banks, to institute the effect of risk management on the state between mobile banking services and performance of commercial banks, to investigate the effect of firm characteristics on the relationship between mobile banking services and performance of commercial bank and finally, to determine the combined effect of mobile banking services, risk management and firm characteristics on performance of banks. This study used the CAMELs Model evaluation system that examines capital adequacy, asset quality, management capacity, income, and liquidity of banks and therefore establishes the overall unsoundness of banks to measure operation. The study used a positivism research philosophy and descriptive research design. The study consisted of 43 commercial banks and utilized correlation and regression analysis to institute the relationship among mobile banking services and performance of bank. The Baron and Kenny (1986) formulation was used to test the intervening and moderating effect of management of risks and firm characteristics respectively on the relationship between mobile banking services and banks performance. Finally, the multiple regression analysis was used to test the joint result of mobile banking services, risk management, and firm characteristics on the banks performance H01 results indicate that a significant relationship between account-to-account transfer, mobile money, and the performance, H02 indicate that the relationship between mobile banking services, liquidity risk and bank performance is statistically significant whereas the relationship between mobile banking services, market risk and performance is not statistically significant. H03 indicate that the size of a firm have no significant effect on the relation between mobile banking services and performance of banks and H04 indicate that mobile banking services, risk management and firm characteristics have significant effect on the performance of commercial banks. The study is contributing to the theory of information systems since it has shown how increase in the use of mobile banking services which leads to improved performance of banks. The study recommend to regulators to ensure management of risks is adhered to in mobile banking services by commercial banks in Kenya to better operation.

LIQUIDITY CAPACITY AND FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA

This study determined the effect of liquidity capacity on the financial performance of commercial banks in Kenya. Specific the study determined the effect of Net Stable Funding, Liquidity Coverage, Liquidity Gap and Provisioning for Non-Performing Loans on the financial performance of banks in Kenya. Bank competition variable was used to determine the moderating effect on the relationship between liquidity capacity and the financial performance of commercial banks in Kenya. The study was anchored on the positivism philosophy. The study used an explanatory research design. The study applied panel data models (random effects) based on the outcome of Hausman specification tests to determine the effect of liquidity capacity on the financial performance of commercial banks in Kenya. To test the moderating effect of bank competition variable on the relationship between liquidity capacity and the financial performance of commercial banks in Kenya, Keppel and Zedeck (1989) two-step procedure was used. The regression results revealed that Net Stable Funding and Liquidity Coverage have a significant positive effect on financial performance of commercial banks in Kenya. Provisioning for Non-Performing Loans Liquidity Gap and Provisioning for Non-Performing Loans had a significant negative effect on financial performance of commercial banks in Kenya. The study established that bank competition had a significant moderating effect on the relationship between liquidity capacity and the financial performance of commercial banks in Kenya. Based on these findings, the study recommends that commercial banks in Kenya need to have a good appreciation in terms of having full visibility of all cash flows on the positions of exposures across their operations. Further, they need to have a good insight in terms of the assumptions that drive the cash flows both from a liquidity point of view and from the valuation perspective to best address the terms of requirement from the regulatory standpoint. Additionally, they should empress the stress testing element into the overall equation of their operational activities as prescribed in the Basel III accords. Finally, the study recommends that all commercial banks in Kenya should incorporate liquidity costs, benefits, and risks in the performance measurement, pricing, and approval process for all significant business activities to ensure that the performance of commercial banks in Kenya is enhanced. This research was unable to identify all the possible variables with explanation power on commercial banks’ financial performance in Kenya. Hence, this formed a basis for further research.

Loan Remodelling and Financial Performance of Commercial Banks in Kenya

The implementation of loan remodelling for a bank particularly during a pandemic is aimed at providing favourable terms that allow borrowers to repay and enable the banks to avoid high rates of non-performing loans. This study’s general objective was to examine the effect of loan remodelling on the financial performance of commercial banks in Kenya. The theories underpinning the study included Financial Intermediation, Innovation Diffusion, Credit Risk, Modern Portfolio, and Modern Monetary Theory. An explanatory research design was espoused in the study. The 36 commercial banks operating in Kenya constituted the target population. The study used a census approach by collecting data from all the banks operating in Kenya. The study used secondary data from the 2016 to 2021 period drawn from the financial statements of the banks. Data analysis included descriptive and inferential statistics. A panel linear regression model was developed and analysed using STATA. The study findings from the regression analysis showed that digital lending had a positive and significant effect on financial performance (β = 0.0822, p-value = 0.003), loan loss provision had a negative but non-significant effect on banks' profitability (β = -0.0255, p-value = 0.301) while business model adjustment had a positive but a non-significant effect on the financial performance of the banks in Kenya (β = 0.0915, p-value = 0.415) during the period under study. Based on these findings, commercial banks should employ technology and innovate more digital products, especially those that facilitate digital lending to enhance their profitability. Banks should continue provisioning for loan loss in compliance with International Financial Reporting Standards and caution against non-performing loans for the sustainability of their business operation. Banks should continue diversifying their investment portfolio and adjust their business model to a point that it would significantly impact their profitability, by creating more non-interest income opportunities. Finally, the Central Bank of Kenya should continue providing a regulatory framework geared towards facilitating lending and improving the profitability of banks. Keywords: Loan Remodeling, Digital Lending, Loan Loss Provision, Business Model Adjustment, Financial Performance        

The Effects of Fiscal Policy on the Performance of Commercial Banks in Kenya

Fiscal policy refers to the use of government spending and tax policies to influence economic conditions. Fiscal policies have existed for a long time, with major debates between proponents of the Keynesian model and the monetary approach. Fiscal policy can either be contractionary, expansionary, or neutral. This study analyses the literature on the effect of the national budget on banks performance; effect of Taxation on bank performance; and the effect of public expenditure on performance of Banks in Kenya. The literature shows that government expenditure is a good fiscal policy measure in terms of the positive performance of commercial banks however, there is a need to consider the issue of corruption that negatively affects the expenditure controls that are crucial in an effective government approach in terms of the way the authorities ensure effective expenditure programs. Budget surplus and the positive impact on banks’ lending, no direct or clear argument shows the role of budgeting on commercial banks' performance. Taxes also play an important role in developing infrastructures that are crucial for the improved performance of firms. However, gaps exist in literature that needs to explored by further studies.    

Effect of Management Efficiency on Financial Performance of Commercial Banks in Kenya

Performance of commercial banks has critical implications for economic growth of countries. The Kenyan banking sector remained resilient on the backdrop of turbulence, characterized by interest rate capping in 2015 and the prolonged electioneering period in 2017 which brought uncertainties in the banking sector. This study investigated the effect of management efficiency on financial performance of commercial banks in Kenya. Efficient market hypothesis and modern portfolio theory guided the study. The study adopted an explanatory research design. The study used 2009-2018 secondary consolidated panel data of 40 commercial banks from Central Bank of Kenya and International Monetary Fund. Time series econometric procedures of co-integration and Vector Error Correction model (VECM) were used so as to determine nature of the time series data and equilibrium relation between the variables. The VECM estimation results identified a significant short run and long run equilibrium relation between coefficient of management efficiency and financial performance of commercial banks in Kenya. The Coefficient of Management Efficiency was 0.2359, p=0.008 < 0.05. The coefficients of management efficiency were positive and significant at 5% level. This implied that for every unit increase in coefficient management efficiency would increase by 0.2359 units of financial performance of commercial banks in Kenya respectively in the long run. The findings indicated a significant co-integration relation between management efficiency and finance performance of commercial banks in Kenya. The VECM results also indicated that management efficiency and financial performance have a long run equilibrium during the study period. Managerial policies and strategies that are cost effective and productive efficient could raise the managerial efficiency and financial performance of banks. Based on the findings the study recommended that banks put a lot of focus on their own internal processes since management efficiency, had positive influence on their profitability policies.

Data Integration Capabilities and Performance of Commercial Banks in Kenya

The purpose of this paper is to present an empirical evaluation of the effect of data integration capabilities on the performance of commercial banks in Kenya. An explanatory non-experimental design was applied to conduct a census of the 43 commercial banks in Kenya. A semi-structured questionnaire supported in collection of primary data. Secondary data from commercial banks annual financial results for period 2013 to 2019 was compiled using data collection sheet. SPSS tool was applied for analysis of data. The regression results disclosed that data integration capabilities positively and significantly affect performance of commercial banks. It was recommended that the managers of commercial banks and other stakeholders should continue investing and adopting data integration capabilities as it is an effective performance enhancement strategy. Further, the policymakers and regulators should employ policies that support data integration capabilities adoption to augment performance.

DIGITAL FINANCIAL INNOVATION SERVICES AND THEIR IMPACT ON THE PERFORMANCE OF COMMERCIAL BANKS IN KENYA

The study aimed at investigating the impact of digital financial services on the financial performance of Commercial Banks in Kenya using secondary dataset generated from the Central Bank of Kenya (CBK) and the Communication Authority of Kenya (CAK) for a period of five years (2015-2019). To achieve this objective, the study used a multiple regression and Pearson correlations. The study using the Pearson correlations found negative correlations between mobile money (registered mobile money accounts, active mobile money agents and mobile money deposits and withdrawals), digital payments (P2P transfers) and performance of commercial banks. However, the study found positive and significant relationship between customer deposits, Gross non-performing loans and performance of commercial banks in Kenya. The study therefore concludes that digital financial services offered by Fintech companies have a negative impact on the performance of Commercial banks in Kenya and recommends that commercial banks should continuously develop more digital financial services and collaborate more with Fintech companies to improve on their performance. The originality of this study will be of benefit to managers of Commercial banks.
 
 JEL: G21, G23, N27, O30, O31, O39
 
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EFFECT OF MOBILE BANKING ON PERFORMANCE OF MICROFINANCE BANKS IN KENYA

Purpose: The purpose of this study was to establish the effect of mobile banking on performance of microfinance banks in Kenya
 Methodology: The study adopted positivism philosophy approach and descriptive research design was used. The study also used census survey. The target population was the thirteen Microfinance Banks regulated by the Central Bank of Kenya. The questionnaires were self-administered and primary data was collected from the thirteen regulated microfinance banks. The data was analyzed using the Statistical Package for Social Science. Descriptive and inferential statistics were used for preliminary analysis. Factor analysis was conducted to reduce the number of factors and Kaiser Mayer Olkin and Barlett’s test of Sphericity were tested and total variance explained, scree plot and rotated component matrix were drawn.
 Findings: The findings showed that majority of the respondents were in agreement that it is easy to deposit and withdraw cash, transfer funds, apply loan and check the balance using mobile banking. The hypothesis (H02) findings showed that mobile banking had a significant effect on performance of MFBs. The summary model showed that the R was 0.280 and a R square of 0.078. This implied that mobile banking predicted 7.8% of the performance of MFBs. The ANOVA results showed that F value was 4.940 and a p value of 0.030 which indicates that it was statistically significant. After the T test mobile banking beta coefficient was the regression model was generated Y = 2.841+ 0.271MBA.
 Unique contribution to theory, practice and policy: The study recommends that MFBs should partner with telecommunication services providers to develop products and services which are customer oriented and easy to use. They should develop strategies on market penetration by creating awareness on the product and services available in the market.

EFFECT OF AGENCY BANKING ON PERFORMANCE OF MICROFINANCE BANKS IN KENYA

Purpose: The purpose of this study was to establish the effect of agency banking on performance of microfinance banks in Kenya
 Materials and Methods: The study adopted positivism philosophy approach and descriptive research design was used. The study also used census survey. The target population was the thirteen Microfinance Banks regulated by the Central Bank of Kenya. The questionnaires were self-administered and primary data was collected from the thirteen regulated microfinance banks. The data was analyzed using the Statistical Package for Social Science. Descriptive and inferential statistics were used for preliminary analysis. Factor analysis was conducted to reduce the number of factors and Kaiser Mayer Olkin and Barlett’s test of Sphericity were tested and total variance explained, scree plot and rotated component matrix were drawn.
 Findings: The descriptive statistics findings disclosed that agency banking has a positive effect on performance of MFBs. This was shown by 71.7% of the respondents were in agreement that agency banking influence the performance of MFBs. The findings showed that the relationship between agency and performance was p value was 0.018 and F test of 5.908 showing that the model was statistically significant for the data set. The coefficient table showed that the equation was Y = 2.680 + 0.355AGB. The findings denoted that agency banking has a moderate relationship with performance of MFBs. The MFBs are using agency banking to grow their businesses thus generating profits and capital gain.
 Unique contribution to theory, practice and policy: The study recommends that MFBs should open more agents especially in the rural areas to facilitate population access near services. In addition, the management team and the policy makers should ensure that policies are elaborated to protect the customers from fraud and also exploitation by the business owners due to higher transaction cost and the business operating the agents should be trained on fraud policies because it is affecting many customers. The government and the MFBs should ensure all those operating the agents are well trained on record keeping, managing of funds, and customer care.

Effect of Firm Characteristics on the Financial Performance of Commercial Banks in Kenya

The study aimed to examine the effect of firm characteristics on the financial performance of commercial banks in Kenya by examining the effect of capital adequacy liquidity, credit risk and bank size on the financial performance. A descriptive research design was used in the study. The study focused on the 36 commercial banks which had complete dataset for the period 2013 – 2018. The study used secondary data acquired from the published yearly financial documents gathered from the Central Bank of Kenya. Analysis of the data was carried out using the STATA software. The relationship between independent and dependent variables was analyzed using descriptive statistics and panel data regression analysis while the strength between the variables was determined using correlation. The financial performance was measured using Return on Equity. Results on the regression models indicated that capital adequacy and bank size had a positive effect on the return on equity of the commercial banks in Kenya. Liquidity and credit risk were found to have a negative effect on the return on equity of the commercial banks in Kenya. Keywords: Capital Adequacy, Credit risk, Liquidity, Bank Size, Return on Equity DOI: 10.7176/RJFA/11-22-06 Publication date: November 30 th 2020

Financial and Non-Financial Measures in Evaluating Performance: The Role of Strategic Intelligence in the Context of Commercial Banks in Kenya

This study provides comprehensive discussion on role of strategic intelligence in commercial banks, in Kenyan context. The primary focus was to evaluate the performance of commercial banks using both financial and non-financial performance measurers. The financial measurers comprised return on equity (ROE), while non-financial measures were customer satisfaction, learning and growth, and internal processes. The study was anchored on resource-based view and balanced scorecard model. The target population comprised 40 commercial banks. Additionally, the sample size 181 was selected proportionately through stratified sampling procedure. Data collection instruments comprised closed and open -ended questionnaires and online review. The study used both primary and secondary data, where primary data was obtained from Kenya commercial banks head offices, while secondary data, for the year 2016 – 2018, was obtained from the annual reports of the central bank of Kenya. Data analysis was done using descriptive statistics and linear multiple regression analysis. Findings of the study indicate that strategic intelligence has a statistically significance on the performance of commercial banks in Kenya. Moreover, both financial and non-financial measures of performance are relevant in the banking sector and growth of Kenyan economy. The study recommends that commercial bank in Kenya should integrate their training focus and strategy implementation with investors interests based on balanced score card.

Financial Innovations and Performance of Commercial Banks in Kenya

Commercial banks in Kenya have embraced alternative banking channels which represent a shift in delivery of banking and financial services since the alternative banking have become synonymous with commercial banks in Kenya. While banks have succeeded in leveraging available technology and provide alternative avenues to customers for banking services, the challenge it faces today is optimizing the usage of these channels so as to improve on their performance. The general objective of this study was to investigate the effects of financial innovations on the performance of commercial banks in Kenya. The specific objectives of the study were to examine the influence of internet banking, mobile banking, agency banking and ATM banking on the performance of commercial banks in Kenya. The study was guided by agency theory, balanced score card and diffusion of innovation theory. This study employed a descriptive research design. The study targeted44 commercial banks in Kenya as at 2017. The 16 banks which embrace all the four financial innovations from 2013 to 2017were selected using purposive sampling method. The sample size was 80 respondents who comprised of 5 senior management employees in each of the selected banks.This study used questionnaire to collect primary data from the respondents. Content analysis technique was used to analyze qualitative data collected from open ended questions in and reported in narrative form. Descriptive statistics such as mean and standard deviation were used to analyse the quantitative data. Multiple regression analysis was used to show the relationship between independent variables against dependent variable. The study revealed that internet banking, mobile banking, agency banking and ATM banking had a positive and significant effect on the performance of commercial banks. Thisstudy concludes that the banking industry has benefited tremendously from the development of the Internet. The Internet fundamentally changed the way in which banking networks are designed to meet the client demands and expectations. Mobile banking provides a good opportunity to commercial banks in Kenya to reach many mobile phone subscribers in Kenya who had remained unbanked and unreached due to limited access to bank branch networks in the country. The access to the large masses through mobile banking of the population gives banks the opportunity to grow by reaching the unbanked population. Agency banking has led to accessibility of financial service to many customer in remote areas and hence an increase in effectiveness and efficiency in service delivery. Customers are satisfied with the automated teller machine services because of ease of use, transaction cost and service security but not satisfy with automated teller machine dispense of cash. The study recommends that the public and businesses must be encouraged to use Internet banking in their daily activities, including deposits, payments and money transfers. Commercial banks in Kenya should ensure convenience and security of mobile banking through written guidelines on convenience and security of mobile banking. Commercial banks in Kenya should increase the number of agents in estates and in the rural areas. This can be done by reducing the requirements of becoming a bank agent. The banks should employ customized software that records relevant information on automated teller machine cards so that banks can establish whether unauthorized transaction has taken place or not.

Prudential Regulations and Financial Performance of Commercial Banks in Kenya

Prudential regulation forms a critical part of operations in the banking sector. The aim of the regulations is to protect investors and consumers and ensure systemic stability. Consequently, commercial banks are required to maintain adequate level of capital, liquidity, asset quality, credit risk and management efficiency. In Kenya, the CBK implemented the prudential regulations in 2013. However, there is no consensus from existing studies whether the new regulations have a positive or negative influence on bank performance. The main objective of this study was to determine the effect of prudential regulations on the financial performance of commercial banks in Kenya. The sample comprised of all 43commercial banks operating in Kenya observed over the study period, 2013-2017.Data was extracted from annual financial reports of the banks and Central bank of Kenya (CBK) annual regulatory reports, which reduced the sample to 36 banks. The study adopted correlation research design and examined the relationship between the independent variables and performance. Multiple regression model was used to determine the linear relationship to examine the effect of the prudential regulations of profitability of commercial banks. From study findings, liquidity management, credit risk management and management efficiency has significant effect on the financial performance of commercial banks while capital adequacy and asset quality has no significant effect on the performance of commercial banks in Kenya. The research findings are useful to the CBK and banks, as it demonstrates the extent to which new prudential regulations influence the financial performance. Variables contributing positively to financial performance should be strengthened while those influencing performance negatively should be reviewed. This will enable the formulation of policies and strategies that will help in running the operations of commercial banks. The investment advisors and analysts use the research outcome to advise their clients on the future prospects and sustainability of investments in commercial banks. The study recommends adoption of the regulation as it affects banks financial performance thus improve banks stability and reduces chances of insolvency. Keywords : liquidity and credit risk management, management efficiency, capital adequacy and asset quality, financial performance DOI : 10.7176/RJFA/11-14-06 Publication date :July 31st 2020

Credit Risk and Financial Performance of Commercial Banks in Kenya

Credit Risk and Financial Performance of Commercial Banks in Kenya

Do Bank Size Moderate Relationship between Banks’ Portfolio Diversification and Financial Performance of Commercial Banks in Kenya?

Purpose- It is complicated to efficiently manage the bank’s portfolio, simultaneously maximize returns and minimize risks while being subject to managerial and regulatory constraints. In the financial industry, the size of a bank is used to assist in capturing economies as well as diseconomies of scale.
 Design/Methodology- As in cases of most literature from finance, natural logarithms of banks' total assets were made use of to measure commercial banks’ size. The 43 commercial banking institutions having an official license from CBK by December 2017 were the target population of this study. The study analyzed Time-Series Cross-Sectional unbalanced secondary panel data obtained from all the 43 commercial banking institutions in Kenya for fifteen years ranging from 2003 to 2017.
 Findings- Study findings revealed a positive effect of bank size on ROE and ROA that was significant. Correlation analysis revealed a positive association of bank size on the financial performance of banks in Kenya, which was significant. Bank size had a significant moderating effect on the relationship of banks portfolio diversification and financial performance of banks in Kenya.
 Practical Implications- The findings on bank size insinuated that a higher size of entire asset of banks is most probable to accelerate the bank to diversify into feasible opportunities on investment, traverse more enhanced lines of business, increase capacity in market power and, produce increased value that boosts the firm to profit from economies of scale and wider scope and henceforth superior and increased financial performance.

The Joint Effect of Corporate Governance, Risk Management and Firm Characteristics on Financial Performance of Commercial Banks in Kenya

The Joint Effect of Corporate Governance, Risk Management and Firm Characteristics on Financial Performance of Commercial Banks in Kenya

The Relationship between Corporate Governance and Financial Performance of Commercial Banks in Kenya

The Relationship between Corporate Governance and Financial Performance of Commercial Banks in Kenya

Board Size and Financial Performance of Commercial Banks in Kenya

Board of directors are individuals appointed to oversee the operations of the firm by shareholders. They ensure that operations of the firm are carried out in a more effective manner. Board size as part of board characteristics contributes positively to the firm’s financial performance. Due to agency problems, board size had been expanded to incorporate a variety of expertise and interest groups. However, there is no one board size fit all, the size is determined by the industry and the country of operation. Begging the need for examination of the influence of board size on return on equity of commercial banks operating in Kenya. The target population was 43 commercial banks in operation in Kenya as at 31st December 2017. Secondary data on board size as independent variable and return on equity as a dependent variable for 34 commercial banks for the years 2008 to 2017 was obtained from the internet and perusal of the annual accounts of the individual commercial banks. The study adopted causal research design. Using STATA Version 13 to analyse data, the study used2W both descriptive and inferential statistics. Based on the analysis, the study concluded that overall, board size had a negative but significant influence on return on equity on commercial banks in Kenya. The study also found that board size had a positive and significant influence on return on equity across time. However, in regard to time, board size had a negative but significant variability on return on equity across time. In the case of across banks, board size had a negative but significant influence on return on equity across banks. In consideration of the individual banks, board size had a positive and significant variability on return on equity across banks. The third aspect of groupings, board size had insignificant influence on return on equity across peer. While on individual groups, board size had a positive and significant variability on return on equity across peer. The study recommended a board size of between 6 and 10 board members to embrace a mixture which caters for various interests to facilitate better financial performance. Keywords: Board Size, Return on Equity, Commercial Banks in Kenya DOI : 10.7176/RJFA/10-24-14 Publication date: December 31 st 2019

Effect of Process Innovations on Financial Performance of Commercial Banks in Kenya

Process innovations positively influence the firm’s performance and ultimately influence the industry’s performance and interactions. This study aimed to evaluate the effect of identified process innovations as independent variables on the financial performance as dependent variables in Kenyan commercial banks using panel data for the period from 2014 to 2018. The study assessed the performance of the commercial banks during the pre-innovation period of 2009 to 2013 using return on assets the performance measure and compared the performance during the two periods. Based on the analysis results, firms’ performance as measured by the return on assets (ROA) improved during the post innovations period as compared to pre-innovations period as per the calculated p- values. The findings show that mobile banking transactions, agency banking transactions and internet banking transactions controlled by the firm size and leverage positively affect the financial performance of commercial banks in Kenya. Further, it can be deduced that in order to harness efficiency and operational effectiveness, banks need to be innovative to provide better service to their customers, save on costs, tap markets towards competing effectively. The study evaluated the commercial banks in Kenya especially those whose data on innovation activities was available. The F-statistics test was used to test the validity of the variables and the model used. However, though the findings of the study were positive, further research should be conducted especially focusing on the effects of other forms of innovations (product innovation, marketing and organization innovation) and evaluate how they influence firms performance using other performance measures and incorporating other variables like ownership structures, capital structures or corporate governance measures as either mediating or moderating variables. Keywords: Innovation activities, financial institutions, financial inclusion, mobile banking, internet banking and agency banking. DOI : 10.7176/JESD/10-20-03 Publication date :October 31 st 2019

Relationship between Risk Committee Existence and Financial Performance of Commercial Banks in Kenya

Performance of some banks in Kenya has been declining leading to their collapse or receivership. This may be attributed to many factors such as risk exposure. In bid to protect the financial sector, Central Bank of Kenya therefore directed all the banks to manage risks. One of the mechanisms used by the banks to manage risks is risk committee. Some banks established risk committees while others did not. There is limited knowledge on the relationship between this risks committee and financial performance in commercial banks. This study therefore aimed at determining the relationship between risk committee existence and financial performance of commercial banks. The target population was all commercial banks operating in Kenya. The study adopted longitudinal research design that covered a period of five years (2013–2017). The study used secondary data extracted from annual consolidated and financial reports. Information on specific financial performance indicator was RoA (return on assets) and risk committee existence was extracted from annual reports. Data was analyzed using SPSS by way of regression analysis. The study found that there is a significant positive relationship between risk committee existence and financial performance where the coefficient was r=0.299. The results showed that the model explained 9% (R2 = 0.09, Adjusted R2= 0.1084, F (1) = 17.301, p=0.000, p<0.05). This shows that 9 percent in the variations of RoA can be explained by risk committee existence. From the results, it is evident that risk committee existence and RoA have a significant positive relationship. The study recommends that commercial banks should fully implement risk committees in their operations. This will help the commercial banks to manage risk exposure and improve their financial performance.