Effect of unclaimed financial assets on the financial performance of commercial banks in Kenya

Abstract

Kenya enacted legislation to regulate the management of unclaimed financial assets from various institutions. The Unclaimed Financial Assets Act of 2011 is the main regulation that outlines the way these institutions are supposed to handle unclaimed assets in their custody over a specified period of time. The Act provides for the legislative framework for dealing with unclaimed financial assets. The bill came about after several surveys done by the Government of Kenya which stated that quite a number of billions are held by financial institutions as unclaimed is circulating in the financial system to earn interest. The Act states that all the holding institutions should declare these assets and surrender to the Authority on 1st November every year. The overall objective of this study was to examine the effects of unclaimed financial assets on the financial performance of commercial banks in Kenya. Ten years consolidated reports for 43 commercial banks in Kenya was analyzed using linear multiple regression. In this study the effect of determinants on the financial performance of banks as expressed by Return on Assets (ROA) was evaluated. Both The scatter plot analysis and multiple regression analysis have shown that unclaimed financial assets as an independent variable has a significantly effects on the financial performance of commercial banks in Kenya. Results of the study showed that Unclaimed Financial Assets positively correlates with financial performance of commercial banks in Kenya. The correlation coefficient of unclaimed financial assets with ROA was 0.804 at 95% confidence level. The researcher used capital adequacy, asset quality, liquidity, and cost of operation as moderating factors of commercial banks financial performance in the study. The findings also revealed that these factors have a statistical significant relationship of 0.895, -0.867, 0.576, -0.977 respectively. From the secondary data analyzed it showed that so far the Commercial banks have not complied with the Act, hence these banks are still enjoying holding these assets.