The effect of bank size on profitability of commercial banks in Kenya

Abstract

Company size plays an important role in determining the kind of association the company enjoys within its functional atmosphere and external environment. Size of a firm plays vital role in competing with competitors through the cost reduction and more opportunities to take advantage of. The study sought to determine the effect of bank size on profitability of commercial banks in Kenya. To achieve this objective the study used a descriptive survey. The population of the study constituted all the 43 commercial banks in Kenya. The data was gathered from financial statements and records. Data analysis was done using a regression model. The descriptive findings concluded that commercial banks had a sufficient capacity to generate profitability from their assets. However, this was dependent on some factors like efficiency of the bank, its credit policies, and management and investment decisions. Bank size is moderately positively correlated to profitability of commercial banks in Kenya. The regression results conclude that logarithm of asset was statistically significant since its probability value obtained from the regression model above was below (5%). Liquidity, operating efficiency and capital adequacy were found to be statistically insignificant since their p-values are more than 5%. The limitation of this study is that the business environment is characterized by risks and uncertainties due to its turbulent nature. Macroeconomic factors for example regulations, technology and other microeconomic factors might have affected the findings obtained in this study. The empirical findings found in this study might be useful in guiding central bank of Kenya in setting policies and procedures that encourage commercial banks to grow and expand to enjoy some of the benefits that accrue for large firms like access to credit facilities and economies and scale. This will provide a platform for commercial banks to borrow and invest in capital projects in order to realize profitability.