Determinants of Financial Performance for Commercial Banks Listed at Nairobi Securities Exchange

Abstract

The dynamics of globalization and proliferation underscore the ever-changing nature of the business landscape, emphasizing that financial performance is intricately tied to a myriad of factors. These determinants exhibit variability contingent on the specific context and the organizational nature in consideration. The primary aim of the study was to scrutinize the determinants of financial performance for commercial banks enlisted at the Nairobi Securities Exchange. The summary further unveils an R Square (R²) value of 0.563, indicating that 56.3% of the observed changes in Financial Performance (ROA) can be ascribed to fluctuations in liquidity, management efficiency, capital adequacy, and asset quality. An augmentation of one unit in capital adequacy yields a negative change in financial performance by 0.083, assuming constancy in all other factors. Likewise, a singular unit alteration in asset quality induces a parallel movement in the direction of financial performance. However, this correlation is statistically significant only when all other factors remain unaltered. Moreover, an escalation of one unit in management efficiency triggers a noteworthy opposing movement in financial performance, but solely when all other factors are held steady. Finally, the introduction of one unit of liquidity precipitates a marked negative change in financial performance by 0.832, provided that all other factors remain constant. These interpretations furnish valuable insights into the specific impacts and directions of change associated with each independent variable on financial performance, while considering the effects of other variables are held constant. An intriguing avenue for future exploration involves conducting a sector-specific analysis, concentrating on specific sectors within the banking industry, such as retail banks or investment banks. This focused strategy has the potential to unveil determinants uniquely pertinent to each sector, fostering a more comprehension of their influence on financial performance