Influence of Liquidity Regulation on Financial Performance of Commercial Banks in Kenya

Abstract

This study assessed and deliberated on the influence of liquidity regulation on financial performance of commercial banks in Kenya. This research employed descriptive research design which is suitable for description and measurement of phenomena with high level of accuracy. The target population was 31 commercial banks established under banking act and licensed by CBK for the period 2014 to 2018. Secondary data was obtained and analyzed from published annual financial supervision records at the Central Bank of Kenya, and banks end year financial to statements. Descriptive data analysis was used to determine mean, median, tables graphs, and inferential analysis, where correlation analysis and regression analysis was adopted. The study established that liquidity regulation has positive influence on financial performance of commercial banks. Therefore, the study concluded that liquidity regulation has significant influence on financial performance of commercial banks in Kenya. Commercial banks are required by regulators to hold a certain level of liquidity assets so as they can meet their financial obligation as they arise. By commercial banks holding adequate liquidity, they reduce possibilities of liquidity risk which have negative effect both to individual commercial banks and financial sector as a whole. The study recommended that commercial banks management to motivate their customers to save more money with competitive interest rates, this would increase their liquidity and capital to lend more money hence improved profits.