Effect of Liquidity Shock on Financial Performance of Listed Commercial Banks in Nairobi Securities Exchange, Kenya

Abstract

A strong banking system is essential to the stability and expansion of the economy. However, all banks face significant risks in the unpredictably volatile environment of today, encompassing credit risk, interest rate risk, operational risk, liquidity Shock, market risk, and foreign exchange risk. Liquidity Shock is one of many risks that commercial banks that are listed in the Nairobi Securities Exchange (NSE) are subjected to. This risk can have a significant effect on the financial performance of these banks. As such, the purpose of the study was to analyze the effect of liquidity Shock on financial performance of commercial banks listed in Nairobi Securities Exchange. An independent variable, liquidity shock contribute to this risk. This study concentrated on commercial banks which are listed in the Nairobi Securities Exchange market (NSE, 2022); and utilized data from 2013-2022. The study was anchored on liquidity shock theory, A quantitative research design was used for the study. The study adopted a Census, which included all the 11 commercial banks listed in the NSE for the period 2013 to 2022 due to availability of data. Secondary data was collected from the reported financial statements of respective commercial banks for the period 2013 to 2022. Obtaining published financial statements from each of the listed commercial banks on the NSE over a ten-year period – yearly is part of the data collection process. In order to analyze the relationship between liquidity Shock and financial performance of commercial banks with NSE listings, the data was subjected to panel regression analysis. To statistically describe the data, measures of central tendency, dispersion, and position was used. To determine whether the data adhered to the conventional least square assumptions, diagnostic tests were utilized.