Impact of Financial Deepening on Kenyan Commercial Bank’s Performance

Abstract

This study aimed to examine the impact of financial deepening on Kenyan commercial bank‟s performance. The study involved the 43 registered commercial banks in Kenya by the Central Bank of Kenya. In the study, secondary data was used which considered a period of five years (2013-2017). In this period, there was era of financial liberalization and financial institutions development. The study relied on secondary data from the Central Bank of Kenya Website, websites of licensed Commercial Banks in Kenya, Kenya Capital Markets authority and Nairobi Securities Exchange. Descriptive statistics was used while analyzing the data which included the mean and standard deviation. The above was achieved through the use of computer programmes including Microsoft Office Excel and Statistical Package for Social Sciences Programme (SPSS). In establishing how the relationship between the varriables is intirms of streng and the linearity of the relationship, the Spearman‟s Correlation Coefficient was used. In the Spearman‟s test (r) which is used to measure the degree of positive correlation and can range from 0 to +1. It also measures the degree of negative correlation and it ranges from 0 to -1. This study had a significance value of (0.00) of the F-test statistic. This was less than the level of the hypothesis test done. The regression model that was used predicted the findings significantly. The findings of the model showed that credit accessibility and financial innovation explained a large part of the variation in commercial banks return on asset, the variables explained upto 30.3% of the performance‟s variation. Credit accessibility and financial innovation affect return on assets significantly. Commercial banks which invest heavily on innovation are able to tap into new emerging market opportunities. These new innovative techniques leads to reduced costs of operation, in some cases it makes it easier for the banks clients to access the banking services, while in some cases it is able to solve and meet the new emerging needs of the customers. This study therefore recommends that commercial banks in Kenya should increase their investments into activities that increase the access to credit and financial innovation, which eventually will make the banks to serve their clients in a better way and meet the emerging needs of their markets.