Survey on factors influencing the liquidity level of commercial banks in Kenya

Abstract

This exploratory study sought to investigate the factors that influence the liquidity level of commercial banks in Kenya. Primary data was collected with the aid of a semi-structured questionnaire. Data was analyzed using descriptive statistics and factor analysis. Cross tabulation was also used to determine the relationship between the variables and the demographic data. The study identified the main factors that influence the liquidity level of commercial banks in Kenya and ranked them as follows; Factor one was outlined as the role played by the bank and its regulator. This factor comprised variables such as central banks role, interest rates and bank obligation. Factor two, performance and economic cycles, comprised of variables such as bank performance and economic cycles. Factor three, monetary and employment policies, comprised of monetary policy and price of labor. Factor four, government expenditure, consisted of banks contingency planning and government expenditure. While balance of payment status came last as factor five. Other factors include; target market, government role, inflation, integrity of the employees, maturity of loans and deposits, customer service, regularity of cash deposits, competition, branch location, and the level of idle assets in that order From the study it can be concluded that there are other factors, other than CBK regulation, which influence the liquidity level of commercial banks in Kenya. However, liquidity regulation by the central bank of Kenya still ranks as number one factor in influencing the liquidity level of commercial banks.