The Relationship Between Corporate Banking And Financial Performance Of Commercial Banks In Kenya

Abstract

Corporate banking has been coined from the word corporate to mean provision of banking services to corporations and institutional clients. Corporate banking is also referred to us wholesale banking, business banking or institutional banking amongst some players. In Kenya, the target clientele of corporate banking segment ranges from medium sized companies, regional corporate bodies to complex conglomerates and giant multinationals with a key purpose of mobilizing deposits and growing the asset base. This study was established to examine relationship between corporate banking and financial performance of commercial banks in Kenya. The study adopted the descriptive research design targeting 43 commercial banks and one non-bank financial institution in Kenya for period of Five years from 2011 to 2015. The study used secondary data and the analysis of the data was done by Statistical Package for Social Sciences SPSS. Both descriptive and inferential statistics sided in the analysis. The study found out that there is positive correlation between corporate banking market share and return on assets (r = 0.339, n = 220, p = .000), a positive significant correlation exists between liquidity and return on assets (r = 0.276, n = 220, p = .000), a positive significant correlation exists between interest rates and return on assets (r = 0.798, n = 220, p = .017), statistically significant association exists between corporate banking market share, liquidity and financial performance of commercial banks in Kenya and positive relationship exists between corporate banking market share, liquidity and financial performance among commercial banks in Kenya. The study concludes that corporate banking market share of affects the financial performance of commercial banks, a positive significant relationship exists between liquidity and financial performance of commercial banks in Kenya, interest charged by commercial banks to their customers and financial performance is significantly and positively correlated and an insignificant positive correlation exists between capital adequacy and financial performance of commercial banks in Kenya. The study recommends that all commercial banks in Kenya should have strategies in place to grow their corporate banking market share. Some strategies that should be put in place to grow the corporate banking market share include effective relationship management, cross selling to increase the customer’s wallet share, active product promotions and quality, relevant and diverse product offering. Commercial banks in Kenya should strive to improve their liquidity positions so as to meet their obligations as and when they fall due. Commercial banks can enhance their liquidity positions by sound management of cash, short term marketable securities, cash equivalents, short term liabilities and contingent liabilities that collectively forms the working capital of commercial banks, the central bank on the other hand should actively oversee, monitor and regulate the interest rates among commercial banks so that a balance is achieved between interest charged on deposits and the interest charged on borrowings and drawdowns and commercial banks should seek to be adequately capitalized. Some of the strategies that enhance adequate capitalization include initial Public Offering (IPO) and rights issue in the security exchange markets, capital injection by a strategic investor or a private equity firm and earnings reserve.