Capital and Financial Performance of Commercial Banks in Kenya

Abstract

Well capitalized commercial banks do not incur penalties imposed by regulatory authorities hence improving their performance.  However, despite the mitigating efforts by the central bank of Kenya, commercial banks have recorded a decline in performance as noted by reduction of average return on assets over the period of study, that is; 4.7% in 2013, 3.4% in 2014, 2.9% in 2015, 3.3% in 2016, 2.7% in 2017, 2.7% in 2018, 2.6% in 2019 and 1.7% in 2020. The study sought to establish the effect of capital on performance of commercial banks in Kenya by adopting a causal research design. The target population included 38 commercial banks operating in Kenya between 2013-2020. Secondary panel data was collected from the banking supervision and individual bank’s published annual reports. Data analysis involved descriptive statistical analysis so as to determine the trend of the study variables while linear regression was used to test the relationship between capital and financial performance. Findings of the study were presented using tables and narrations while hypotheses were tested at a significance level of 0.05. The study found out that capital significantly influenced financial performance of commercial banks in Kenya. The study recommends that commercial banks should build up their capital base in order to improve performance in the long run.

Keywords: Capital, Performance, Commercial banks

DOI: 10.7176/EJBM/14-2-04

Publication date: January 31^st 2022