School of Business

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Subject: search.filters.subject.Capital Adequacy

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    Effect Of Selected Firm Characteristics On Financial Performance Of Commercial Banks In Kenya
    (KCA University, 2021) Juma, Evans
    Commercial banks operate in a turbulent business environment and this calls for an understanding of their internal and external factors to enable them to increase their financial performance. This study’s objective was to examine the influence of selected firm characteristics on financial performance of commercial banks in Kenya. Precisely, the study sought to establish the influence of capital adequacy, board composition, management efficiency and working capital on financial performance of commercial banks in Kenya. The study was anchored on the buffer theory of capital adequacy, agency theory, performance theory and the liquidity-profitability trade-off theory. The study was carried out using a longitudinal design. The 42 commercial banks operating in Kenya by December 2019 were the study population. Secondary data from 2015-2019 was collected from Central Bank of Kenya’s yearly banking surveys, and the commercial banks’ financial statements. To analyse the collected data, the study applied the panel data regression model. The appropriate diagnostic tests were conducted before and after fitting of the model. The study findings established that capital adequacy had a significant and negative influence on financial performance measured through ROA (β = -0.3186, t = -5.43, p < 0.05), but had no significant influence on financial performance measured through ROE (β = 0.4091, t = 1.29, p = 0.200). The study also determined that board composition had no significant effect on the financial performance of the commercial banks as indicated by ROA (β = -0.2555, t = -0.11, p = 0.91) and ROE (β = -1.64, t = -0.13, p = 0.893). Moreover, the study findings determined that management efficiency had a significant and negative influence on financial performance measured through ROA (β = -0.2105, t = -11.43, p < 0.05) and ROE (β = -0.9342, t = -9.37, p < 0.05). The findings also established that working capital had no significant effect on the financial performance of the commercial banks as indicated by ROA (β = -0.7792, t = -1.01, p = 0.312) but had a significant and negative influence on the financial performance of the commercial banks as indicated by ROE (β = -8.3384, t = -2.00, p =0.047). The research offers the following recommendations based on its findings. First, the study recommends to Central bank of Kenya to be vigilant to ensure that the minimum CAR for commercial banks in Kenya is met by all banks. Regarding management efficiency, the study recommends to commercial banks in Kenya to have a suitable and organized policy framework to guarantee financial management efficiency. Lastly, the study recommends to commercial banks to carefully balance their working capital to balance the risk and returns that come from holding liquid assets and current liabilities.
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    Firm Characteristics And Financial Intermediation Efficiency Of Commercial Banks Listed At The Nairobi Stock Exchange In Kenya
    (KCA University, 2022) Njuguna, Eunice W.
    Commercial banks play an integral role in the financial intermediation. Financial intermediation is defined as the process through which commercial banks connect savers and borrowers. The efficiency and stability of commercial banks are regarded integral in the stability and eventual growth of the economy. Firm characteristics of commercial banks refer to those attributes that are largely determined by the management and the other organizational stakeholders including the employees. These variables are integral in the determination of the financial stability of commercial banks. However, there are various instances that have depicted the Kenyan banking sector sometimes unstable as well as inefficient especially following recent collapse of the Imperial bank and Chase bank. This study focused on the firm characteristics and their influence on the financial intermediation efficiency of commercial banks listed at the Nairobi stock exchange. A descriptive research design was adopted. Data was collected from consolidated reports for years 2017 to 2021. Data analysis was done through descriptive statistics and inferential statistical analysis including correlation and regression analysis. STATA and E-Views were used to incorporate the data forming the pooled model. Output from the data analysis were presented through tables, figures, and graphs. There was positive and not significant effect of capital adequacy on financial intermediation efficiency of listed commercial banks in Kenya. Further, operating efficiency and asset quality has inverse and not significant effect on financial intermediation of listed commercial banks. Moreover, there was an inverse and significant effect of liquidity on financial intermediation efficiency of listed commercial banks in Kenya. Based on the findings it can be concluded that increase in capital adequacy increases financial intermediation efficiency of listed commercial banks in Kenya. An inverse contribution of asset quality on financial intermediation efficiency we can conclude that an increased level of non-performing loans decreases financial intermediation efficiency. Further, there is a negative co-movement between liquidity and financial intermediation of listed commercial banks in Kenya. Moreover, an increase in outcomes with increase in level of financial intermediation efficiency of respective listed commercial banks in Kenya. From the findings it was recommended that the management approach ought to have vale chain design by incorporating the value benefit from respective firm characteristics. Financial services provision should be anchored on measures aim at precipitating demand for financial services in the target market niche. Moreover, commercial banks should stimulate demand for deposit and credit through linking deficit and surplus saving customers. Furthermore, banks should adopt data mining approaches so as to eradicate spillage of resources and optimize intermediation efficiency.
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    Effects Of Firm Characteristics On Operational Efficiency Of Commercial Banks In Kenya
    (KCA University, 2022) Wangu, Evalyne N.
    The role played by Commercial banks in any economy in the world cannot be over-emphasized. Commercial banks in Kenya have contributed to savings which interprets to 78.55% of the total savings in the economy. The efficiency of commercial banks is of big importance in order to ensure that the financial sector is stable. There has been an increased cost of running a banking business that has led to increased cost of loans and customer dissatisfaction in commercial banks in Kenya. This study sought to examine the effect of firm characteristics on operational efficiency of commercial banks in Kenya by evaluating the effect of capital adequacy, asset quality and bank liquidity and on operational efficiency of commercial banks in Kenya. The study also assessed the moderating effect of bank size in the relationship between firm characteristics and operational efficiency of commercial banks in Kenya. The study stands to benefit researchers, policymakers and commercial banks. The study may face the limitation of non-response. The study was anchored on the liquidity preference theory, credit creation theory and buffer capital theory. The study is descriptive research design and targeted a population of 40 commercial banks licensed and operating in Kenya. Secondary data will be used which will be obtained public annual financial statements from the various commercial banks’ website and Central bank of Kenya website. The data collected was analyzed for descriptive and inferential statistics using Statistical Package for Social Sciences Version 26.0 and presented using graphs tables, charts and a linear regression equation. From the analysed data, there is weak relationship between capital adequacy and operational efficiency of commercial banks in Kenya as shown by a coefficient value was 0.15. Secondly, the assets quality is key in determining the operational efficiency of the commercial banks in Kenya as shown by a correlation coefficient of 0.717. Liquidity was established to be statistically correlating with operational efficiency in commercial banks in Kenya and this was shown in correlation value of 0.602. Bank size evaluated based on the total assets owned by the commercial banks revealed a strong positive relationship with banks operational efficiency as shown by a correlation value of 0.813. form these findings, the study recommended that banks should strategize to increase their core capital as this will avail more funds for lending which is the key banking function. Lending will earn the bank interest hence improve their operational efficiency. Finally, the Treasury and the bank managers should establish a should framework to ensure the commercial banks have enough assets to sail through the unstable economic conditions in the financial sector. The assets will able banks meet their operational cash needs, invest adequately and make profits.
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    Determinants Of Financial Performance of General Insurance Companies in Kenya
    (KCA University, 2023) Kimani, Peter G.
    Stability and good performance of insurance companies is paramount. Kenyan insurance companies have, for the last decade, faced a turbulent business environment. This study evaluated determinants of financial performance for the insurers. It focused on five specific objectives namely: to establish the effect of underwriting risk on financial performance of general insurance companies in Kenya, to evaluate the effect of liquidity on financial performance of general insurance companies in Kenya, to find out the effect of solvency on financial performance of general insurance companies in Kenya, to assess the effect of firm size on financial performance of general insurance companies in Kenya to establish the effect of capital adequacy on financial performance of general insurance companies in Kenya. The basic theory for this study is theory of asymmetrical information while others for specific variables were liquidity preference theory, resource based view and pecking order theory. The study targeted thirty one general underwriters. Data was sourced for a period of seven years from 2014 to 2020. A panel data set was collated from the seven-year observations. Data analysis was done using panel estimation method. The study concluded that the most significant determinants of financial performance of insurance companies in Kenya are underwriting risk and solvency. Underwriting risk had a negative and significant influence on return on assets. Also, solvency was found to better financial performance of insurance companies significantly. Moreover, the study concluded that liquidity and capital adequacy negatively and insignificantly affected financial performance of insurance companies in Kenya. Lastly, firm size positively and insignificantly affected financial performance of insurance companies in Kenya. It is recommended that insurance companies in Kenya need to diversify underwriting business in order to mitigate risks associated with underwriting risk as it hampers financial performance. Also, insurance firms should maintain high solvency ratios as solvency was found to boost financial performance. This study is valuable because it provides empirical evidence that can be used by regulators to form policies that may stabilise the sector. At the same time, it contributes to firm performance literature in Kenya and beyond. The study too is useful to scholars in the field of insurance as it adds to insurance literature from Sub-Saharan Africa.
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    Effect Of Financial Soundness Indicators On The Performance Of Listed Insurance Companies In Kenya.
    (KCA University, 2023) Lelei, Fridah J
    This study investigates the impact of financial soundness indicators on the performance of listed insurance companies in Kenya. Drawing from Shareholder’s Theory, Capital Buffer Theory, and Portfolio Theory, the study aims to evaluate the effects of capital adequacy, managerial effectiveness, earning potential, and liquidity on the performance of insurance firms. Utilizing a descriptive research design, dynamic panel data from 2008 to 2022 is employed for analysis. The target audience comprises six insurance firms as of December 2022, all included in the study through a census approach due to the small sample size. The findings reveal significant insights into the relationship between financial soundness indicators and the performance of insurance firms. Firstly, capital adequacy emerges as crucial for ensuring the financial stability of insurance firms, with ample capital facilitating smoother operations amidst the sector's inherent volatility. This aligns with previous research indicating a positive correlation between capital levels and financial stability. However, managerial effectiveness is found to have a counterproductive effect, potentially due to increased operational costs in the short term. This finding contrasts with studies in the banking sector, suggesting differences in business dynamics between insurance and banking. Moreover, earning potential is identified as a key determinant of performance, emphasizing the importance of sustainable returns and earning quality for insurance firms. The study underscores the need for firms to continually assess and adapt to environmental risks to maintain financial standing. Interestingly, liquidity is found to have a negative impact on performance, as high liquid asset holdings limit opportunities for profitable investments, unlike findings in the banking sector. In conclusion, this research highlights the complex interplay between financial soundness indicators and insurance firm performance in Kenya. It emphasizes the significance of capital adequacy and earning potential while acknowledging the nuanced effects of managerial effectiveness and liquidity. Based on these findings, recommendations are made for insurance firms to prioritize capital management, sustainable earnings, and prudent liquidity strategies to enhance overall performance and long-term sustainability in the dynamic insurance landscape of Kenya.