PurposeThe study aims to analyze the effect of financial soundness on financial performance of commercial banks in Kenya.Design/methodology/approachThe study used dynamic panel model to analyze data from commercial banks for the period 2009 to 2020. The study was modeled on the concept of CAMEL approach using five CAMEL variables as financial soundness indicators. Four indicators that is, net interest margin (NIM), earnings per share (EPS), return on assets (ROA) and return on equity (ROE) were used as measures of financial performance.FindingsGeneralized method of moments results established that financial soundness had a statistically significant effect on NIM, ROA and ROE. It was also found that asset quality and earning quality had a statistically significant effect on net interest margin. In addition management efficiency had significant effect on ROE. However, the study established that capital adequacy, asset quality, earning quality and liquidity had a statistically insignificant effect on ROA and ROE respectively while capital adequacy, management efficiency and liquidity had statistically insignificant effect on NIM.Practical implicationsBank managers should put into place effective financial policies to govern changes in CAMEL variables to ensure optimal banks' financial soundness to facilitate positive growth in banks' financial performance.Originality/valueThe current study is modeled on the concept of the CAMEL approach by employing the five CAMEL variables as financial soundness indicators. In addition, the study contributes to local literature by examining banks in a developing economy to provide reliable and relevant information on their differences to monitor their dynamics in financial soundness and financial performance which could not be provided by regional or global studies.

PurposeThis study analyzed the moderating effect of bank size on the relationship between financial soundness and financial performance of commercial banks in Kenya.Design/methodology/approachThe study employed data from 39 commercial banks for ten years from 2009 to 2018. Panel data regression model was used to analyze data.FindingsThe study results established a negative moderating effect of bank size on the relationship between commercial banks' financial soundness and net interest margin (NIM) and return on assets (ROA) with the results indicating a correlation coefficient of −0.1699 and −0.218, respectively. However, an absence of moderating effect was established when return on equity (ROE) was used as a measure of financial performance.Practical implicationsThe paper finding recommends that banks' management and other policy makers should consider the effect of bank size while devising financial soundness policies to ensure optimal level of banks' financial soundness aimed at improving banks' financial performance. In addition, bankers associations should come up with policies to standardize asset quality management practices to ensure continuous positive performance of the banking sector.Originality/valueThe study shows the contribution and applicability of the theory of production in the banking sector.

The study examined the relationship between ownership structure and financial performance of commercial banks in Kenya for the period 2009–2020. The data were collected from audited financial statements of 39 commercial banks in Kenya. Regression results found strong evidence on ownership structures in explaining the differences in commercial banks’ financial performance. The results established that the greatest influence of ownership structures was on net interest margin at 53.04% and return on assets at 31.37%. Influence of ownership structures was found to be low on return on equity at 3.32% and earnings per share at 2.13%. The results found a negative association between state ownership and net interest margin, negative association between management ownership and both net interest margin and earnings per share, negative association between institutional ownership and return on assets and a negative association between foreign ownership and earnings per share. Based on the findings, commercial banks should vary their ownership structures to boost financial performance. Secondly, banks with high percentage of state ownership should consider partial privatization to improve corporate governance practices. Third, banks should adopt managerial ownership policy limiting the proportion of equity stock on executives to limit their powers in strategic decision making. Fourth, the study proposes a percentage limit on equity stock of an individual institutional investor. Lastly, the study proposes that bank’s management to come up with a policy detailing the role and place of foreign investors in strategic decision making to ensure their presence in every decision undertaken by bank managers.