Firm Characteristics And Financial Intermediation Efficiency Of Commercial Banks Listed At The Nairobi Stock Exchange In Kenya

Abstract

Commercial banks play an integral role in the financial intermediation. Financial intermediation is defined as the process through which commercial banks connect savers and borrowers. The efficiency and stability of commercial banks are regarded integral in the stability and eventual growth of the economy. Firm characteristics of commercial banks refer to those attributes that are largely determined by the management and the other organizational stakeholders including the employees. These variables are integral in the determination of the financial stability of commercial banks. However, there are various instances that have depicted the Kenyan banking sector sometimes unstable as well as inefficient especially following recent collapse of the Imperial bank and Chase bank. This study focused on the firm characteristics and their influence on the financial intermediation efficiency of commercial banks listed at the Nairobi stock exchange. A descriptive research design was adopted. Data was collected from consolidated reports for years 2017 to 2021. Data analysis was done through descriptive statistics and inferential statistical analysis including correlation and regression analysis. STATA and E-Views were used to incorporate the data forming the pooled model. Output from the data analysis were presented through tables, figures, and graphs. There was positive and not significant effect of capital adequacy on financial intermediation efficiency of listed commercial banks in Kenya. Further, operating efficiency and asset quality has inverse and not significant effect on financial intermediation of listed commercial banks. Moreover, there was an inverse and significant effect of liquidity on financial intermediation efficiency of listed commercial banks in Kenya. Based on the findings it can be concluded that increase in capital adequacy increases financial intermediation efficiency of listed commercial banks in Kenya. An inverse contribution of asset quality on financial intermediation efficiency we can conclude that an increased level of non-performing loans decreases financial intermediation efficiency. Further, there is a negative co-movement between liquidity and financial intermediation of listed commercial banks in Kenya. Moreover, an increase in outcomes with increase in level of financial intermediation efficiency of respective listed commercial banks in Kenya. From the findings it was recommended that the management approach ought to have vale chain design by incorporating the value benefit from respective firm characteristics. Financial services provision should be anchored on measures aim at precipitating demand for financial services in the target market niche. Moreover, commercial banks should stimulate demand for deposit and credit through linking deficit and surplus saving customers. Furthermore, banks should adopt data mining approaches so as to eradicate spillage of resources and optimize intermediation efficiency.