Abstract: The main objective of the study was to find out the effect of capital adequacy on performance of listed Commercial Banks of Kenya. The specific objectives of the study were; the effect of asset quality on financial performance of commercial banks, the effect of management efficiency on financial performance of commercial banks, the effect of liquidity management on the financial performance of commercial banks and the effect of loan portfolio on the financial performance of commercial banks. The study reviewed related literature derived from research work by other researchers on capital adequacy and some general literature to aid in further understanding the purpose. It was organized as follows: a theoretical review of the theories, an empirical review as per the study objectives, a conceptual framework, a critique, the research gap and a summary. The study adopted descriptive research design. The study population was all 44 commercial banks registered with central bank of Kenya. The study focused on all 11 commercial banks listed in Nairobi Securities Exchange. Secondary data on asset quality, management efficiency, liquidity management and loan portfolio was collected from the audited financial statements for a period of five years 2011 to 2015 and analyzed using SPSS Version 21.0. Correlation and multiple regression analysis were used for analysis. T-test was carried out in testing research hypotheses. Data was presented inform of frequency distribution tables. This facilitated description and explanation of the study findings. The study found that asset quality, management efficiency and liquidity management were negatively correlated with ROE at -0.375, -0.272 and -0.032 respectively. Loan portfolio was positively correlated with ROE at 0.251. Asset quality and management efficiency were statistically significant with ROE with p-values of 0.000 and 0.011 respectively hence we accept the null hypothesis. Liquidity management and loan portfolio were insignificant with p-values of 0.304 and 0.161 respectively hence we reject null hypothesis. The study concluded that listed commercial banks need to maintain low non-performing loans, reduce on their expenditures, maintain high liquidity levels and lend more so as to earn from interest from loans. The study recommends that proper vetting need to be done on loan approval and also close monitoring need to be done to the lenders so as to reduce credit risk. All expenditures need to be approved by the relevant authority and should only for business operations. Banks should not maintain too much fixed assets as opposed to liquid assets while loan book need to grow at positive level without jeopardizing the operations of the institution. The study recommends further research on non-listed commercial banks so as to compare results and also other factors influencing performance of financial performance of listed commercial banks should be researched on.
Keywords: Capital, Performance and Commercial Banks.
Title: EFFECTS OF CAPITAL ADEQUACY ON FINANCIAL PERFORMANCE OF LISTED COMMERCIAL BANKS IN NAIROBI SECURITIES EXCHANGE
Author: NTHENYA JANEFRANCES ALBERT, DR TOBIAS OLWENY
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
Research Publish Journals
