Factors Influencing Financial Performance among Commercial Banks in Kenya: A Case Study of Commercial Banks in Kenya

Abstract

The general objective of this study was to evaluate the factors influencing the financial performance in the banking sector in Kenya with reference to selected commercial banks. More specifically, the study sought to determine how competition for clientele influence the financial performance of selected commercial Banks in Kenya; examine how leadership influences the financial performance of selected commercial Banks in Kenya; and assess the extent to which source of funds influence financial performance of selected commercial Banks in Kenya. To realize these specific objectives, the study adopted the descriptive survey research design and targeted senior, middle and lower cadre staff from commercial banks headquartered in Nairobi County. The study employed stratified random sampling to identify the sample elements from the target population. Primary data was collected using structured questionnaires. Both descriptive and inferential statistics were computed in the analysis with the aid of the Statistical Package for Social Sciences. Whereas descriptive analysis entailed frequencies, percentages, means and standard deviations, inferential analysis included Pearson correlation and regression analysis. Data was presented using tables and figures. The study reveals that there was stiff competition for clients among commercial banks in the country. This has prompted the banks to employ skilled workers who have been actively been involved in coming up with innovative products for purpose of sustaining competition. There was a positive and statistically significant correlation is observed between competition for clientele and financial performance (.195 <0.05). It was also found that Competition for clientele has a significant effect on financial performance (β = .497, t= 2.033, p = .045). The study also found that respondents were in agreement that leaders in the respective organizations work to generate new policies and action plans that steer the company ahead of the competition; and that leadership style determines the commitment of workers towards realizing organizational goals and that leaders the banks continued to inspire teamwork for timely completion of tasks. Inferential analysis further show that at a positive and statistically significant correlation is observed (.587 <0.01); and that keeping other factors constant, leadership has a significant effect on financial performance (β = .416, t= 7.426, p = .000). Finally, a large majority of respondents affirmed that there are many sources of funds for the respective commercial banks; that to a great extent, the source funds reflect in the bank's performance; and that the bank's performance reflects employer turn over. Source of funds was also found to have a positive and significant correlation with financial performance (.205 <0.05). The study also found that keeping other factors constant, source of funds has a significant effect on financial performance (β = .502, t= 2.146, p = .034). Various inferences are made. First, competition for clientele has a positive and significant effect on financial performance of the commercial banks prompting the banks to undertake innovations aimed at tapping into untapped markets. These include the youth and the unbanked populations across the country by use of such innovations as mobile apps, online banking and agency banking. The study also concludes that leadership has a positive and significant effect on financial performance of commercial banks in Kenya. It is particularly notable from that finding that leadership among commercial banks in the country work to generate new policies and action plans that steer the company ahead of the competition. Further, Source of funds have a positive and significant effect on financial performance of commercial banks in Kenya. This owes to the source funds determining the performance in terms of return on equity and liquidity for work operations among other key fundamentals in the working and operations of commercial banks. Based on the foregoing findings and conclusions thereof, it is hereby recommended that the government should provide incentives for research and development to researchers who would continue to invest their time and skills in discovering more bank innovations, which has resulted from intense completion for clientele. It is recommended that leaders in the banking industry should invest their time, effort and resources towards mobilizing their staff as well as channel adequate resources towards the development of relevant and compatible products and services in order to stay ahead of competition. Commercial banks should further strive to diversify their sources of funds in order to increase revenue streams. The main source of funds for commercial banks is deposits from their customers. Without deposits and depositors, the sustainability of commercial banks would be at risk.