Factors Affecting Profitability Of Commercial Banks In Kenya: A Comparative Analysis Between Listed And Unlisted Banks

Abstract

Banking sector acts as the life blood of modern trade and commerce to provide them with a major source of finance. Commercial Banks in Kenya have tended to pursue very rural or otherwise very unreachable clients, even at great cost. They provide financial services, including credit, tailored to the unique needs and limitations of the poor. The general objective of this study was to provide a comparative analysis of the factors affecting profitability of listed and unlisted commercial banks in Kenya using CAMEL model as modified by capital structure. This research is useful for both existing commercial banks as well as those that are starting up. It will enable existing commercial banks in Kenya to identify areas of improvement in their operations that can result in increased profitability through increased revenue or through reduction in operational costs. The study is a comparative study based on secondary data. The population of interest of this study was all commercial Banks operating in Kenya both listed and unlisted. The data was collected from the Central Bank of Kenya Banking Surveys from 2005 to 2015. Data was analyzed using fixed effect panel data regression model. The study found that the variables considered in this study (capital adequacy, asset quality, management quality, management efficiency, earnings ability, liquidity and ownership structure) influences banks profitability. The study recommends that banks should maximize lending to customers and also scrutinize their financial ability to repay before advancing loans to them to avoid default loans in order for them to maximize their profits.