Effects of liquidity risk on profitability of commercial banks in Kenya
Ouma, Tom M
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The objective of this study was to determine the effect of liquidity risk on profitability of commercial banks in Kenya. The research used a descriptive survey research design. The descriptive survey was ideal because it ensured thorough description of the situation ensuring least possible bias in data collection. The study made use of secondary data collected from annual reports submitted to the CBK for the target population comprised of all the commercial banks in Kenya. Summaries of data findings together with their possible interpretations were presented using tables, charts, correlations, standard deviations and regression. The study found out that mean of current ratio is relatively high as compared to other variables. The current ratio also had the highest standard deviation. The current ratio had the highest correlation with the net interest income followed by the liquidity ratio. From the regression equation the study concluded that a unit increase in current ratio, liquidity ratio and deposits would lead to improvement on net interest income. Therefore; the study recommends that; liquidity risk should always be taken in to account to improve the banks return as measured by net interest income and hence the performance of the banks. Policy makers should also undertake to understand risks affecting the operations of the commercial banks to maximize performance.
University of Nairobi