DETERMINING THE RELATIONSHIP BETWEEN LIQUIDITY AND FINANCIAL PERFORMANCE OF LISTED COMMERCIAL BANKS IN KENYA
Abstract
Purpose of Study: The study sought to determine the relationship between liquidity and financial performance of commercial banks Listed in NSE, Kenya.
Problem Statement: Over the years, these institutions have played a pivotal role in the economy however, listed commercial banks in Kenya face several financial performance issues that threaten their stability, profitability, and overall contribution to economic development. One of the issues affecting the financial performance of Kenyan banks is credit risk management issues.
Methodology: The study adopted explanatory research study. The study targeted 11 listed commercial banks in Kenya for a period of five (5 years) covering between 2019 and 2023. The study conducted census of all the 11 listed commercial banks in Kenya. The researcher used data collection sheet to extract and compile the required secondary data. The study used both inferential and descriptive statistics.
Result: The findings revealed a strong negative and statistically significant correlation between liquidity and financial performance of listed commercial banks in Kenya.
Conclusion: Liquidity ratio has a statistically significant relationship with the financial performance of listed commercial banks in Kenya. Banks with higher liquidity ratios may experience lower short-term profitability due to the conservative approach to maintaining liquid assets.
Recommendation: The Central Bank of Kenya (CBK) should continue to enforce the minimum Capital Adequacy Ratio (CAR) to ensure the stability of the banking system.
Keywords: Liquidity, Financial Performance, Return on Assets, Commercial Banks, Listed Banks
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