Effect of Internal Control Guideline Compliance on Financial Performance of Commercial Banks in Kenya

Abstract

Bank failures coupled with declining profitability has been experienced in the Kenyan banking sector for a couple of years. This comes even after the Central Bank of Kenya has made concerted efforts to address the problem by introducing the risk management guidelines in 2005. In its report on the financial performance of the Kenyan banking sector for 2016/2017 financial year, banks profitability recorded a decline compared to the previous year. This situation raises the issue of whether these guidelines have had any effect on enhancing bank performance.  The objective of this study was to determine the effect of board and senior management oversight guideline compliance on financial performance of commercial banks in Kenya. This study was guided by the Stakeholder theory and a descriptive research design was used. The study’s target population comprised of all the 42 commercial banks licensed by the central bank to operate in Kenya. Sampling was not required since the study adopted a census of all the banks. Both secondary and primary data were used in the study. Primary data was obtained using structured questionnaires while the secondary data was collected from the audited financial reports of the commercial banks. Data analysis was done using both descriptive and inferential statistics with the help of Statistical Package for Social Sciences. The study established that board and senior management oversight guideline was a statistically significant predictor of the financial performance of the Commercial Banks in Kenya (t = 3.722; p = 0.000). The findings of this study can benefit to the Central Bank of Kenya in informing the review of the guidelines, management of commercial banks in making policy decisions and other scholars in the same area of study to provide literature.

Keywords: Board and Senior Management Oversight, Commercial Banks, Financial Performance, Return on Assets

DOI: 10.7176/RJFA/12-22-05

Publication date: November 30th 2021