The Effect of Banking Regulations on Financial Performance of Commercial Banks in Kenya
Abstract
The objective of the study was to establish the effect of banking regulations on
financial performance of commercial banks in Kenya. This study was anchored on
three theories namely; Modern Portfolio Theory, Modigliani and Miller Theory and
Liquidity Preference Theory. A cross-sectional correlation research design was used
for this study to enable the researcher to observe two or more variables at the point in
time and is useful for describing a relationship between two or more variables. The
populations for this research included listed Commercial Banks in Kenya. The study
used secondary data for the purpose of analyzing the relationship between bank
regulation and financial performance for commercial banks in Kenya. The secondary
data was collected from the financial statements of the banks. The data collected was
cleaned, validated, and edited for accuracy, uniformity, consistency and completeness.
The study then used Statistical Package for Social Science (SPSS) to analyze the
quantitative data. A linear regression model of financial performance versus
regulations was then applied to examine the effect of banking regulations on financial
performance of commercial banks in Kenya. The study concluded that capital
regulation requirement, liquidity requirement and risk management have a positive
effect on return on assets. The study further established that mean capital requirement
and mean liquidity requirement have a significant effect on return on assets. The mean
risk management however does not have a significant effect on return on assets.
Overall, the study established that the model is not significant in explaining
performance of the Commercial banks. This means that there are other determinants
of return on assets of commercial banks in Kenya. The study recommends that the
commercial banks should not be extremely restricted because this can create
information asymmetry and consequently lead to the poor performance of the bank.
However, adequate regulations should be put in place to bring sanity to the sector.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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