Abstract: Any banking institution main goal is to operate profitably in order to maintain stability and sustainable growth. Both external and internal economic environments are viewed as critical drivers for bank performance. The main purpose of this study was to determine the effects of bank specific factors on the financial performance of commercial banks in Rwanda for a period of 5 years, starting from the year 2012 to 2016. The study was guided by the following objectives; to evaluate the effects of asset quality on the financial performance of commercial banks in Rwanda, to determine the effects of capital adequacy on the financial performance of commercial banks in Rwanda, to determine the impact of management efficiency on the financial performance of commercial banks in Rwanda and to evaluate the effects of liquidity on the financial performance of commercial banks in Rwanda. Firm performance was measured using Return on Equity (ROE). This study adopted a descriptive research design in soliciting information on effects of liquidity management on financial performance of commercial banks. The target population was 14 commercial banks in Rwanda. The sampling technique that was employed is simple random sampling and the sample size was 56 respondents. Primary quantitative data was collected by use of self-administered structured questionnaires. The researcher also used secondary data derived from the audited financial statement of the commercial banks for the period 2012 to 2016. The data collected was analyzed, with respect to the study objectives, using both descriptive and inferential statistics. The data was analyzed using descriptive statistics such as mode, median, mean, standard deviation. Multiple regression analysis was employed to determine relationship between bank specific factors and financial performance of commercial banks in Rwanda. Data was presented in tables, charts, figures and mathematical expressions. The results showed that there was positive and significant association between ROA and all the independent factors. The results showed that there has been a significant decrease in capital adequacy during the five-year period. There was also a finding that asset quality affects profitability and the financial performance of banks. While holding the other factors constant a unit increase in asset quality while holding the other factors constant would lead to an increase in ROA of banks by a factor of 0.461. A unit increase in capital adequacy of the bank led to an increase of 0.354 in ROA. A unit change in management efficiency while holding the other factors constant would lead to an increase of 0.454 in ROA of the banks. A unit change in liquidity while holding the other factors constant would lead to an increase of 0.343 in ROA of the banks. The study concludes that Asset quality of the bank have the highest influence on ROA of banks. The study recommends that efficient and effective management should be adopted by bank managers to ensure that banks do not become insolvent.
Keywords: Asset quality, Financial performance, Commercial banks in Rwanda.
Title: EFFECTS OF BANK SPECIFIC FACTORS ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN RWANDA: A CASE OF COMMERCIAL BANKS IN RWANDA
Author: BIRORI RAYMOND HIRWA, Dr. PATRICK MULYUNGI
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
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