Effects Of New Bank Reforms On The Performance Of Commercial Banks In Kenya: A Camel Model

Abstract

This study critically examines the effects of new bank policies on the financial performance of Kenya’s commercial banks. The principal goal of this research is to evaluate the determinants of banks performance in Kenya, in order to provide policy advice to the main players in the banking sector. The CAMEL Model approach was adopted for this study. The approach was backed up by the market power theory, efficient structure theory and signaling theory. The reforms which have been introduced over the years introduced controls on deposits and interest rate caps which together have indispensable repercussions in the banking sector. This study thus intends to shed light on banks’ performance in Kenya amidst the introduced policies. A panel model approach using 11 NSE listed commercial banks in Kenya as cross section series and period 2014 to 2017 was utilized. The findings reveal that the regression coefficients are positive for capital adequacy, asset quality, management efficiency, earnings and liquidity. It therefore illustrates positive relationship between Earnings per share and the capital adequacy ratio, asset quality ratio, management efficiency ratio, earnings ratio and liquidity ratio however they were not statistically significant at 95% confidence level in both random and fixed effects model.