Effect of Liquidity Management on the Financial Performance of Commercial Banks in Kenya

Abstract

This study determined the effects of liquidity management on the performance of commercial banks. The study applied a descriptive research design. The sample period was from 2010 to 2014. This study used secondary data that was obtained from the CBK. A regression model was used in data analysis. The findings are that there were fluctuations in financial performance while liquidity management and capital adequacy registered a steady growth. This shows that banks manage their liquid assets well to satisfy customers’ demands for cash. Moreover, commercial banks have the ability to absorb reasonable operational and functional losses without risking the institutions’ stability. Furthermore, the management of the commercial banks had the ability to meet the need for additional cash. The study found that ROA and liquidity management are positively correlated. This relationship is also statistically significant. This means sufficient cash causes good financial results. Furthermore, the study showed that liquidity management explains 34% in the variability achieved financial returns. These findings are similar to those of existing empirical literature (Olongo, 2013; Wanjohi, 2013; Kavale, 2016). However, the results contradicts the findings of Bassey (2015), Molefe and Muzindutsi (2016) and Vintila and Nenu (2016) who found a negative relationship between the two variables.