The effect of internal variables on the profitability of commercial banks in Kenya
Abstract
The banking sector in any economy serves as a catalyst for growth and development.
Banks are able to perform this role through their crucial functions of financial
intermediation, provision of an efficient payment system and facilitating the
implementation of monetary policies. Bank profitability is usually expressed as a
function of internal and external determinants. The overall performance and
profitability of the banking sector in Kenya has improved tremendously over the last
10 years. The aim of this study was to close the gap in knowledge by investigating
how internal variablesi.e. loan portfolio quality, Asset value; Administrative costs and
liquidity affect profitability within commercial banks in Kenya. The study used
secondary data from annual Bank Survey Reports from CBK and Economic Survey
Reports from KNBS for the period 2009 to 2013. A multiple linear regression model
was employed to obtain the desired results. The analysis showed that Loan portfolio
quality, liquidity, asset value and administrative costs have statistically significant
impact on profitability. Based on the results and findings, the study recommended
policies that would encourage capitalization of banks (asset value), reduce costs of
their operations, and minimize on the credit risk while encouraging banks to minimize
their liquidity holdings. The study therefore, provides additional knowledge about
Kenyan commercial banking sector profitability that is important for policy making.
Citation
Master Of Business Administration, University of Nairobi, 2014Publisher
University of Nairobi