Financial Management Efficiency and Financial Performance of Commercial Banks Listed on the Nairobi Securities Exchange
- November 9, 2019
- Posted by: RSIS
- Categories: Commerce, IJRISS
International Journal of Research and Innovation in Social Science (IJRISS) | Volume III, Issue X, October 2019 | ISSN 2454–6186
Omete Francis Ikapel1, G.S Namusonge2, M. Sakwa3
1 University of Eldoret, Kenya
2,3Jomokenyatta University of Agriculture and Technology, Kenya
Abstract: – Banks, as financial intermediaries play a significant role in the economic development of a country, by facilitating the flow of funds from surplus economic units to deficit income units. The efficiency of the intermediation function carried out by these institutions aims at ensuring stability of the financial system, and guarantee economic development. This study sought to examine the effect of financial management efficiency on financial performance of commercial banks in Kenya. The study targeted commercial banks listed on the Nairobi Securities Exchange for the period 2006 to 2017. The dependent variable of this study was financial performance, measured by the return on assets and return on Equity. The predictor variables were financial management efficiency, inferred from capital adequacy, liquidity, financial leverage and market capitalization.Bank specific, industry specific and macroeconomic factors influence banks’ intermediation efficiency, thus affecting bank efficiency and performance. This study adopted the descriptive research design, which involved collection and analysis of both primary and secondary data to infer the relationship among the variables under investigation. Statistical analysis was done with the aid of Statistical Package for Social Sciences (SPSS) software. The results showed that there is a strong and positive relationship between financial performance of commercial banks proxied by return on assets (ROA) and return on equity (ROE). The study rejects the null hypothesis that there is no significant relationship between financial management efficiency and financial performance of commercial banks in Kenya. We recommend that commercial banks in Kenya should adopt efficient financial management mechanisms to improve their performance. Specifically, banks should comply with capital requirements, maintain adequate and optimal liquidity, and leverage on the existing opportunities offered by technology to ensure efficiency. The results of this study are of great benefit to various stakeholders including but not limited to bankers, researchers, regulatory authorities and academicians.
Key Words: Financial Management, Banking Efficiency, Capital Adequacy, Liquidity
