The effect of central bank of Kenya prudential guidelines and regulations on the financial performance of commercial banks in Kenya

Abstract

The study sought to evaluate the effect of CBK prudential guidelines and regulations on the financial performance of commercial banks in Kenya. After secondary data gathered from Bank supervision reports of CBK and published financial statements of commercial banks. The collected data was edited and cleaned for completeness in preparation for coding. Once coded, the data was entered into the Statistical Package for Social Sciences (SPSS) version 17 for analysis. Descriptive statistics such as mean and standard deviation were used to analyse the data. Regression analysis was used to test the relationship between the variables under study in relation to the objectives of the study. The study recommended that there is a strong and positive relationship (r=0.628) between financial performance of banks and the CBK prudential guidelines and regulations. CBK prudential guidelines accounts for 29.9% of the financial performance of commercial banks in Kenya. The study also concludes that growth in Gross Domestic Product of the country, high levels of Capital Adequacy, high Management Oversight Efficiency level and high Liquidity levels of the bank as well as was low inflation rates found have a positive effect on the banks financial performance. The study also concludes that the Kenyan commercial banks have a very low asset quality which makes it to have a negative effect on the financial performance of the banks. The study further concluded that this study supports existing literature. The study also found out that the management efficiency levels of the commercial banks are below average. This study recommended that the management of banks should start deploying their resources more efficiently, start maximizing their income more and also reduce further their operating costs so as to raise their management efficiency levels. Management efficiency determines the level of operating expenses and in turn affects profitability of the bank.