The influence of human resource management practices on financial performance of commercial banks in Kenya

Abstract

The financial/banking sector is human capital intensive since it relies heavily on its human resource capital to offer services to its clients. This implies that the human capital plays a critical role in order for the banks to meet their goals and thus it is important to explore and study the HRM practices which impact on the human capital and banks‟ financial performance. The main objective of the study was to determine the influence of Human Resource Management Practices on the Financial Performance of Commercial Banks in Kenya. The population of study comprised of all the 43 licensed commercial banks in Kenya. Both primary and secondary data was collected. Primary data was collected using a semi-structured questionnaire. Secondary data was collected from the Central Bank of Kenya which consisted of the financial performance reports of the banks. Descriptive statistics method was applied to analyze the data using a statistical package for social scientists, SPSS. The analyzed results were presented on tables. Finally, correlation analysis was carried out to establish the relationship between the research variables. The study found that most commercial banks lacked effective human resource plans, employed ineffective recruitment and selection procedures, lacked effective reward management systems, lacked effective training and development programs and career development programs. The study thus concluded that the major human resource management practices that affected the financial performance of commercial banks included human resource planning, recruitment and selection, reward management, training and development, career planning and employees relations. The study recommended that commercial banks human resource management should embrace strategic human resource planning programs that are linked with the overall banks strategy. The bank human resource management should design an effective recruitment policy linked to the overall banks strategy. The banks recruitment practices should always be in accordance with the recruitment policy guidelines. Commercial banks should carry out periodic performance appraisal by embracing performance appraisal systems that are linked with the overall banks strategy such as Merit rating, Management by Objectives (MBO) and 360-degree feedback. The human resource management should formulate and implement an active reward policy linked to the overall banks strategy, commercial banks should establish an active training and development policy formulated for its employees.