Effect of Asset Liability Management Strategies on the Financial Performance of Commercial Banks in Kenya

Abstract

This study looked at how ALM (asset liability management) affected the financial health of Kenyan public financial institutions (commercial banks). Owing to the necessary data derived from the CBK annual reports, 28 domestically licensed commercial banks and 14 international commercial banks with branches, agencies, and other outlets throughout the country from 2012 to 2022 were chosen for this purpose. For the analysis, second-party data was gathered from the Federal Reserve Bank (CBK) annual reports. Descriptive statistics, correlation coefficient, and regression analysis were used to analyse the acquired data. The study established that Asset Liability Management is comprised of the CAMEL factors, i.e., Negative operational and financial issues like; reduction in investor trust, panic withdrawals, and problems with everyday operations, among others, can be caused by factors such as capital adequacy, asset quality, liquidity, operational efficiency, and income diversification. Therefore, commercial banks’ balance cash banks and outflows introduction (asset reduce management factors). According to the regression analysis results, the CAMEL factors prove statistically significant on commercial banks’ financial performance. The commercial observed that more significant Capital Adequacy, liquidity, and operational efficiency hurt on financial hurts but are statistically significant for their t-calculated values were higher than the t- critical in absolute of the threshold level of 1.96. Whereas Asset Quality and income diversification had a positive impact on the financial performance of the banks, and their t- calculated as well were more significant than the t-critical 1.96, thus proved to be statistically significant, not proving analysis findings led to the conclusion that asset liability management impacted Kenya’s commercial banks' financial performance.