FINANCIAL MANAGEMENT PRACTICES AND FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA
Gilbert Mutai - Master In Business Administration (Finance), Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr. Julius Miroga - Lecturer, Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
The financial performance of commercial banks has been a subject of research due to financial management-related issues because higher credit growth will not viably bring higher profits if banks fail to manage financial risk using effective financial management. The study sought to determine the effect of financial management practices on the financial performance of commercial banks in Kenya. Capital structure management practices, liquidity management practices, credit risk management practices, and working capital management practices were adopted as the measure for the independent variable, while Return on Assets was used as the measure for the dependent variable. The research used 39 operational banks in Kenya as the target population, covering five years from 2017-2021. Stata 17 was used to analyze the data, and the following findings were obtained; Liquidity management practices revealed an insignificant positive relationship of 0.004 at a 5% level of significance to the financial performance of commercial banks in Kenya. Capital structure management practices indicated a significant positive relationship of 0.001 at a 10% significance level to the financial performance of commercial banks in Kenya. Credit risk management practices revealed a significant negative relationship -0.381 at a 1% significance level between credit risk management practices and the financial performance of commercial banks in Kenya. Finally, working capital management practices indicates a significant positive relationship of 0.063 at a 10% level of significance to the financial performance of commercial in Kenya. The research recommends that bank management should make sure that they maintain substantial levels of liquidity to maintain competitive performance. Commercial banks must have a feasible capital structure management that addresses issues such as flexibility where changes in the capital market should be well adapted to the capital structure management. Further studies should also be carried out on other variables not studied to determine whether they significantly influence the financial performance.