The Relationship between size and profitability of Kenyan Banks: A Case of Commercial Banks in Kenya
The study was carried out to establish the relationship between size and profitability of Kenyan commercial banks between the year 1998 and 2007. The main objective of the study was to determine whether or not there exists a relationship between profitability of banks and their various size variables. Various independent variables were identified and they include: technology, branch network, human resources, liquidity, shareholders funds, customer deposits, bank loans, total assets and advances to customers as very essential in determining the profitability of a commercial bank. Profit margin ratio was therefore considered as the dependent variable in this study. The study employed Linear Multiple Regression to find out whether an independent variable predicts changes in a given dependent variable. The population of interest in this study consisted 42 commercial banks registered and licensed under the Banking Act Chapter 488 of the Laws of Kenya and were in existence since 31st December 1997. The period of study was from 1998 to 2007. Secondary data was obtained from the published financial statements and management accounts of 35 commercial banks. This was a response rate of 83% and was considered adequate. The findings indicated that some variables such as number of ATMs, number of employees, net liquid assets, shareholders’ funds, customers’ deposits and bank loans have a positive relationship with profitability whereas number of branches, total assets and number of customer accounts have a negative relationship to profitability. The study recommended that banks should emphasize on positive variables to maximize profits. Some research gaps were also identified such as the need to find out reasons for negative relationship among some factors and measures to be employed to uplift weak positive relationship among other factors to enhance profitability.