The relationship between derivatives and financial performance of commercial banks in Kenya
Abstract
Increasing globalization of commerce is exposing firms to various financial risks, unrelated to
their lines of business. Some of these risks are firm or situation specific with no ready-made
exchange traded instruments to offset such risks. The management of these risks has created a
new line of financial derivatives, the over-the-counter (OTe) derivatives. The objective of this
study was to establish the relationship between derivatives and profitability of commercial banks
in Kenya. A descriptive research design is concerned with describing characteristics of a
problem. It is appropriate for this project because it helped to portray accurate profile of events
and situations in the emerging derivative markets. Statistical package for social scientists (SPSS) software version 17 was used to analyze the data.
Data was obtained through secondary sources. The secondary data was obtained from various
financial journals; internet published financial statements and documents. The population of the
study consists of all the 43commercial banks in Kenya as at 31 st December 2011, licensed and registered under the Banking Act. The study found that for commercial banks in Kenya to remain profitable they should have a put into consideration the several proxies for derivatives
highlighted it this study.
The study concludes that there exists relationship between derivatives and financial performance of commercial banks in Kenya. The total deposit was found to positively influence the profitability of commercial banks in Kenya. The study recommends that for commercial banks in Kenya to remain profitable they should have a put into consideration the several proxies for derivatives highlighted it this study. This will help in making decisions about credit policies, matching investments to objectives, asset allocation for institutions, and balancing risk against profitability.
Publisher
University of Nairobi, Kenya