The Determinants of Commercial Banks Profitability in Kenya (1983-2012)

Abstract

This research paper examines some of the key determinants of commercial banks’ profitability in Kenya. The first objective of the study was to determine the effects of bank-specific factors on the profitability of commercial banks in Kenya. The second objective was to determine the effects of macroeconomic factors on profitability of commercial banks in Kenya. The study employed a time series data analysis technique to achieve the above objectives. The study used data from annual Bank Survey Reports from CBK and Economic Survey Reports from KNBS for the period 1983 to 2012. A multiple linear regression model was employed to obtain the desired results. The analysis showed that both bank-specific factors and macroeconomic factors have statistically significant impact on profitability. Based on the results and findings, the study recommends policies that would encourage capitalization of banks, reduce costs of their operations, and minimize on the credit risk and liquidity holding while harmonizing the long term effects of the macroeconomic factors. The study therefore, provides additional knowledge about Kenyan commercial banking sector profitability that is important for policy making.