dc.description.abstract | The objective of the research was to establish the effect of change in provisioning
policy to the financial performance of commercial banks in Kenya. This study also
sought to establish how the control variables; asset quality, capital adequacy and
management quality affect the financial performance of commercial banks in Kenya.
Secondary data was extracted from audited financial statements of banks for the
period 2014 to 2018. Descriptive statistics were used to compute the means, standard
deviations, skewness as well as kurtosis. The correlation between change in loan loss
provisioning and the financial performance of banks was tested using inferential
statistics like correlation and regression analysis. All variables recorded Variance
Inflation Factor (“VIF”) statistics which were less than 3 indicating absence of multicollinearity
between the variables. Further, the data collected was distributed normally
evidenced by Kolmogorov-Smirnov and Shapiro-Wilk statistics whose p-values were
≥ 0.05. It was established that a very strong relationship (R=0.844) exists between the
financial performance of banks and loan loss provisioning. Loan loss provisioning
when moderated against asset quality, capital adequacy and management quality
influence 70.5% of the total variability in banks’ the financial performance as
measured by the R-square value of 0.705. This implies that 29.5% of the commercial
banks’ the financial performance cannot be explained by loan loss provisioning and
the control variables. The research concludes that a very strong relationship (R=
0.844) exists between the financial performance of commercial banks and loan loss
provisioning among banks in Kenya. The implication is that recognizing loan loss as
per IFRS 9 leads to better financial performance by reducing loan losses. The research
also concludes that loan loss provisioning under control of asset quality, capital
adequacy and management quality influence 70.5% of the total variability in
commercial bank the financial performance. This implies that 29.5% of the
commercial banks’ the financial performance cannot be explained by loan loss
provisioning and the control variables. The research concludes that loan loss
provisioning ratio, asset quality, capital adequacy and management efficiency
influence commercial banks the financial performance positively. This effect is also
statistically significant. The research established that loan loss provisioning as per
IFRS 9 influences commercial banks the financial performance of positively. The
research recommends that in order to avoid loan losses, financial institutions should
implement IFRS 9 (ECLs) in totality. However, further research should be conducted
to establish the factors influencing commercial banks’ the financial performance in
Kenya. | en_US |