Bank Characteristics And Financial Performance Of Lower Tiers Commercial Banks In Kenya

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ABSTRACT

The lower tier commercial banks in Kenya have been recording declining performance over the recent past especially in the wake of tight regulatory controls and shifting operating environment. Poor financial performance has cost several lower tier banks dearly to the extent that some had to be put under receivership. Recently in the financial year 2017, most banks in tier II and III posted poor financial results with previous superb performers posting big losses. To thrive, the commercial banks must reconsider their internal formations or characteristics and must adopt a redesign that best places them well to effectively compete. While studies have been done on this area, a lot of gaps remain unresolved on the need to have a detailed assessment of bank characteristics, replicate studies to the local context, use more objective measures of performance and address conflicts presented in past findings. The purpose of this study was to establish the effect of bank characteristics on financial performance of lower tier commercial banks in Kenya. Specifically, the study aimed to establish the effect of bank size, board composition, and ownership structure on financial performance of lower tier commercial banks in Kenya. Performance indication embraced profitability indicators and specifically the Return on Assets as well as Return on Equity. The study was guided by the transaction cost theory, agency theory, and stewardship theory. The descriptive survey design was applied for the study and targeted all the 36 lower tier (Tier II and III) commercial banks in Kenya. The study relied on secondary data which were collected with the aid of a document review guide or checklist.Data were analysed using descriptive analysis, correlation analysis and multiple regression analysis. The findings indicated that there was a strong positive and significant relationship between bank size and ROE, there was also a weak positive and significant relationship between bank size and ROA and lastly, there was a weak positive and significant relationship between bank size and NI. There was a strong positive and insignificant relationship between board composition and NI, there was a weak positive and insignificant relationship between board composition and ROA and there was also a weak positive and insignificant relationship between board composition and ROE. There was an insignificant negative relationship between ownership structure and ROE, there was an insignificant negative relationship between ownership structure and ROA and also there was an insignificant negative relationship between ownership structure and NI. The findings further indicated that bank size had a significant effect on financial performance, also board composition had a significant effect on financial performance, ownership structure had an insignificant effect on financial performance and lastly monetary policy did not have a significant moderating effect on the relationship between bank characteristics and financial performance of lower tier commercial banks in Kenya. It was concluded that bank size had relatively stronger effects on ROE compared to ROA and NI and every bank should strive to have the best mix of assets and loans, and should strive to encourage more customer deposits to positively affect financial performance. Banks with a higher number of directors seem to be earning much higher returns than their counterparts despite being in same macroeconomic environment. Lower tier commercial banks managers owned a third of the banks’ equity and there was a negative and weak relationship between ownership structure and the three measures of financial performance which included NI, ROE and ROA. In conclusion, more equity ownership by the managers did not affect financial performance. Lastly, monetary policy did not have any significant moderating effect on financial performance of lower tier commercial banks in Kenya

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APA

MAINGI, N (2021). Bank Characteristics And Financial Performance Of Lower Tiers Commercial Banks In Kenya. Afribary. Retrieved from https://afribary.com/works/bank-characteristics-and-financial-performance-of-lower-tiers-commercial-banks-in-kenya-1

MLA 8th

MAINGI, NEWTON "Bank Characteristics And Financial Performance Of Lower Tiers Commercial Banks In Kenya" Afribary. Afribary, 01 Jun. 2021, https://afribary.com/works/bank-characteristics-and-financial-performance-of-lower-tiers-commercial-banks-in-kenya-1. Accessed 31 Mar. 2023.

MLA7

MAINGI, NEWTON . "Bank Characteristics And Financial Performance Of Lower Tiers Commercial Banks In Kenya". Afribary, Afribary, 01 Jun. 2021. Web. 31 Mar. 2023. < https://afribary.com/works/bank-characteristics-and-financial-performance-of-lower-tiers-commercial-banks-in-kenya-1 >.

Chicago

MAINGI, NEWTON . "Bank Characteristics And Financial Performance Of Lower Tiers Commercial Banks In Kenya" Afribary (2021). Accessed March 31, 2023. https://afribary.com/works/bank-characteristics-and-financial-performance-of-lower-tiers-commercial-banks-in-kenya-1