Factors Affecting Financial Performance of Commercial Banks in Kenya


  • Nicholas Mbugua Njoki University of Nairobi
  • Dr. Winnie Nyamute University of Nairobi




Commercial banks are crucial in determining a nation's economic growth and stability. The study objective was to determine the variables that affect Kenya's commercial banks financial performance. ROA measurement of financial performance served as the dependent variable. The independent factors included bank size, managerial effectiveness, asset quality, liquidity, and capital adequacy. To explain the relationship between the dependent and independent variables, the study employed a descriptive research approach. The analysis was done using a multiple linear regression model with secondary data obtained from banks audited yearly financial statements. The findings revealed that the predictor variables accounted for 40.6% of changes in financial performance while 59.4% changes in financial performance could be explained by other internal factors not considered in this study. Additionally, it was established that AQ and SZ had a favorable impact on ROA, supporting the idea that a rise in AQ and SZ causes an increase in ROA. On the other hand, CA, LR and ME had negative effect on ROA leading to the conclusion an increase in CA, LR and ME leads to a decrease in ROA. The study recommended that the CBK adopt flexible policy to match the prevailing economic and market conditions in determining the minimum capital adequacy and liquidity ratios to caution banks from holding excessive capital and assets. A study on the impact of CAMEL indicators on financial performance including all commercial banks in Kenya was recommended because the study left out earning capacity as an internal factor.

Keywords: Financial Performance, Capital Adequacy, Asset Quality, Management Efficiency, Size & Liquidity

Author Biographies

Nicholas Mbugua Njoki , University of Nairobi

Master’s Graduate, University of Nairobi

Dr. Winnie Nyamute, University of Nairobi

Senior Lecturer, Department of Finance and Accounting, University of Nairobi


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How to Cite

Njoki, N. M., & Nyamute, W. (2023). Factors Affecting Financial Performance of Commercial Banks in Kenya. Journal of Finance and Accounting, 7(1), 100–115. https://doi.org/10.53819/81018102t2122