The Impact of Core Capital on the Profit Ability of Commercial Banks in Kenya

Abstract

This research was undertaken in order to determine the influence of core capital on profitability of commercial banks in Kenya. The objective of the study was to determine the effect of core capital effect on profitability. So far no studies have successfully shown this effect on the banks and this study will help to determine to what proportion core capital influences profitability of commercial banks in Kenya.

The researchers runan explanatory study on all the 43 commercial banks in Kenya. Data was analyzed using Microsoft excel software and was presented using scatter plot graphs and frequency tables. Secondary data obtained from the Central Bank of Kenya Bank Supervision Annual Reports was analyzed through Simple Linear Regression. The results showed that there exists a positive linear relationship between core capital and profitability. It also showed that 20% of the profitability is affected by the core capital.

Consistent with previous estimations that inadequate core capital in the banks was a cause of less profitability in the commercial banks this study determined that banks have a responsibility to ensure their capital base is adequate enough to be able to offer loans and other vital financial services to their customers. The study recommended that the banks should ensure their capital base is adequate enough be in a position to earn higher revenues and make higher profits. Its main limitation was inusing only one independent variable ending up underestimating the explanatory power of the resulting model