Financial Deepening and Financial Performance of Commercial Banks in Kenya
The collapse of some of the commercial banks in Kenya has raised concerns over the financial performance of the banking industry. Due to this challenge, stakeholders including creditors, depositors, employees and investors have incurred huge financial losses. The study sought to determine the effect of financial deepening on financial performance of commercial banks in Kenya. The specific objectives were; to examine the effect of interest rates, government policies, bank deposits and bank credit on financial performance of commercial banks in Kenya. It employed a descriptive research design. The study population comprised of all the 43 commercial banks in Kenya. The findings indicated that coefficient of bank deposits; bank credit and government regulations had a positive and significant effect on financial performance of commercial banks in Kenya. However, the effect of interest rate on financial performance was statistically insignificant. The study concluded that when combined, all the predictor variables except interest rate positively and significantly influence financial performance of commercial banks in Kenya. In particular, government policies were found to be the most significant predictor of financial performance, followed by bank credit, followed by bank deposits and lastly interest rate. The study recommended that commercial banks management should consider lowering the interest rates they charge on credit. This will enable more people to access loans and will also translate into increased financial returns. The Central Bank of Kenya should streamline banking policies in order to enhance performance of the banks. The banks management should develop effective savings mobilization strategies such as product development and marketing strategies. The management of commercial banks should widen their credit base and advance credit to more customers. This will ensure that they make more profits.
Keywords: Financial deepening, financial performance, commercial banks in Kenya
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