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EFFECTS OF BANKING SECTORAL FACTORS ON THE PROFITABILITY OF COMMERCIAL BANKS IN KENYA

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Author(s): Tobias Olweny | Themba Mamba Shipho

Journal: Economics and Finance Review
ISSN 2047-0401

Volume: 1;
Issue: 5;
Start page: 01;
Date: 2011;
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Keywords: Assets Quality | Banking Sectoral Factors | Bank-specific factors

ABSTRACT
The first objective of this study was to determine and evaluate the effects of bank-specific factors; Capital adequacy, Asset quality, liquidity, operational cost efficiency and income diversification on the profitability of commercial banks in Kenya. The second objective was to determine and evaluate the effects of market structure factors; foreign ownership and market concentration, on the profitability of commercial banks in Kenya. This study adopted an explanatory approach by using panel data research design to fulfill the above objectives. Annual financial statements of 38 Kenyan commercial banks from 2002 to 2008 were obtained from the CBK and Banking Survey 2009. The data was analyzed using multiple linear regressions method. The analysis showed that all the bank specific factors had a statistically significant impact on profitability, while none of the market factors had a significant impact. Based on the findings the study recommends policies that would encourage revenue diversification, reduce operational costs, minimize credit risk and encourage banks to minimize their liquidity holdings. Further research on factors influencing the liquidity of commercials banks in the country could add value to the profitability of banks and academic literature.

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