Effect of privatisation on financial performance Of commercial banks listed at the Nairobi stock Exchange
Privatization is the taking of services that are supplied by the government and turning them over to the private sector for provision or production. In Kenya, privatization has been implemented in various sectors such as the industrial, commercial, finance and agriculture. Hongo (2006) while looking at the effect of privatization rate on SOE financial performance where she found that the rate has no effect also observed that no study has been undertaken in Kenya on the effect of privatization on each of the four sectors represented by the already privatized State owned Enterprises (SOEs). This study analysed the effects of privatization on financial performance of state owned enterprises in the banking sector that were privatized through the NSE. The study employed descriptive event census design on a population of privatized commercial banks quoted at NSE. The study used secondary data sources in collecting information; internet, periodic report and brochures on key variables like sales, profit before tax, total assets, current assets, total liabilities and current liabilities for a period of two years before and two years after privatization of each bank. The data was analysed for variation (ANOVA) using the student t-test, to test the hypothesis on whether there is any significance difference in financial performance after privatization. The study found that privatization has a positive impact on the banks' financial performance as it increased the banks' profitability ratios meaning that the banks get a lot of profits for every shilling invested in assets and further that it after privatization, the banks faces more pressure to perform as they are not cushioned by the government hence have to perform to survive. The study recommends that banks should avoid borrowing loans to facilitate the process of privatization so as to make them increase their financial performance.