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Loan Portfolio Growth and Financial Performance of Commercial banks in Kenya

Author

Listed:
  • Paul Kiama Thiong’o

    (Post Graduate Student, Department of Business Administration, Technical University of Mombasa, Kenya)

  • Matata Kilungu

    (Department of Business Administration, Technical University of Mombasa, Kenya)

  • Charles Guandaru Kamau

    (Department of Accounting and Finance, Technical University of Mombasa, Kenya)

Abstract

Loans comprise the single largest asset for commercial banks. To grow the bank's assets, bank managers focus on increasing the number of loans granted by the bank. The general objective of this study was to evaluate the effect of growth in loan portfolios on the financial performance of commercial banks in Kenya. The study used a regression research design. The population of interest consisted of the 44 commercial banks in Kenya. A sample of 31 commercial banks was selected. The study covered a five-year period, from 2011 to 2015. Multiple-linear regression was also used in the analysis. The study found that growth in loan portfolios had a negative effect on the financial performance of commercial banks in Kenya. The effect of loan growth on the financial performance of commercial banks in subsequent years was found to be adverse. This study found that the quality of bank assets had a positive effect on the financial performance of commercial banks in Kenya. However, the effect of liquidity management was not significant. The study found that capital adequacy had a positive effect on the financial performance of commercial banks. The effect of capital adequacy was significant. The study concluded that growth in a bank’s loan portfolio had a negative and significant effect on the financial performance of commercial banks. The study recommended that commercial banks should strategically execute their loan portfolio growth strategies so as to minimize the problem of loan losses in subsequent years.

Suggested Citation

  • Paul Kiama Thiong’o & Matata Kilungu & Charles Guandaru Kamau, 2024. "Loan Portfolio Growth and Financial Performance of Commercial banks in Kenya," East African Finance Journal, East African Finance Journal, vol. 3(1).
    • Handle: RePEc:cwk:eafjke:2024-02
    DOI: 10.59413/eafj/v3.i1.2
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    Cited by:

    1. Abaab, Malek & Drira, Mohamed & Helali, Kamel, 2025. "Regime-switching model estimates the impact of bank liquidity on bank performance across G20 countries: a moderate role for solvency, total loans, and total debt," The Journal of Economic Asymmetries, Elsevier, vol. 32(C).

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