IDEAS home Printed from https://ideas.repec.org/a/spt/fininv/v15y2026i2f15_2_1.html

Effect of Asset Quality and Liquidity on Financial Performance of Commercial Banks in Kenya

Author

Listed:
  • Polycap Obote Olweny
  • Herick Ochieng’ Ondigo
  • Nixon Oluoch Omoro

Abstract

The object of the study was to assess the effect of asset quality and liquidity on financial performance of commercial banks in Kenya. The study deployed explanatory research design using panel data. The period covered was 13 years from 2010 to 2022. Secondary data were mined from individual banks' published audited financial reports and also from annual reports published by the Central Bank of Kenya. A total of 38 commercial banks licensed in Kenya as at December 31st, 2022 were covered under census. Both descriptive and inferential statistics analyses were generated using Stata Soft Ware version 17.0 and Microsoft Excel. Regression analyses were applied to test the hypothesis. Tables and figures were used for data presentation. Based on the findings, asset quality had a statistically significant but negative impact on financial performance. Liquidity, on the other hand, indicated positive but non-statistical significance on financial performance. However, cumulatively, both factors had a statistically significant influence on financial performance. For a bank to survive in the current tempestuous financial climate, the management has to put more emphasis on credit ratings before issuing loans to clients. In addition, the regulatory authorities should relentlessly pursue stringent liquidity policies. All the recommended procedures are in line with the Anticipated Income Theory. This study contributes immensely to the prominence roles credit risk and liquidity risk management framework play in commercial banks’ operations.

Suggested Citation

  • Polycap Obote Olweny & Herick Ochieng’ Ondigo & Nixon Oluoch Omoro, 2026. "Effect of Asset Quality and Liquidity on Financial Performance of Commercial Banks in Kenya," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 15(2), pages 1-1.
    • Handle: RePEc:spt:fininv:v:15:y:2026:i:2:f:15_2_1
    as

    Download full text from publisher

    File URL: http://www.scienpress.com/Upload/JFIA%2fVol%2015_2_1.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Habib-ur Rahman & Muhammad Waqas Yousaf & Nageena Tabassum, 2020. "Bank-Specific and Macroeconomic Determinants of Profitability: A Revisit of Pakistani Banking Sector under Dynamic Panel Data Approach," IJFS, MDPI, vol. 8(3), pages 1-19, July.
    2. Jamil Salem Al Zaidanin, 2020. "A Study on Financial Performance of the Jordanian Commercial Banks using the CAMEL Model and Panel Data Approach," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 9(4), pages 111-130, October.
    3. Herbert V. Prochnow, 1949. "Bank Liquidity And The New Doctrine Of Anticipated Income," Journal of Finance, American Finance Association, vol. 4(4), pages 298-314, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Habib Ur Rahman & Adam Arian & John Sands, 2023. "Does Fiscal Consolidation Affect Non-Performing Loans? Global Evidence from Heavily Indebted Countries (HICs)," JRFM, MDPI, vol. 16(9), pages 1-15, September.
    2. Varda Sardana & Shubham Singhania & Amiya Kumar Mohapatra, 2025. "Macroeconomic Perspectives in Banking: A Systematic Review and Conceptual Framework," South Asian Journal of Business and Management Cases, , vol. 14(2), pages 87-105, August.
    3. mohammed, habib, 2023. "Modeling Determinants of Private Banks Profitability in Ethiopia," MPRA Paper 116699, University Library of Munich, Germany.
    4. Pejman Peykani & Mostafa Sargolzaei & Mohammad Hashem Botshekan & Camelia Oprean-Stan & Amir Takaloo, 2023. "Optimization of Asset and Liability Management of Banks with Minimum Possible Changes," Mathematics, MDPI, vol. 11(12), pages 1-24, June.
    5. Leandro Coghi Bernardelli & Carlos Enrique Carrasco-Gutierrez, 2024. "Macroeconomic, industry-specific and bank-specific determinants of the profitability of Brazilian banks: dynamic panel evidence," Empirical Economics, Springer, vol. 67(2), pages 693-726, August.
    6. Restiana Ie Tjoe Linggadjaya & Apriani Dorkas Rambu Atahau & Gracia Shinta S. Ugut & Kim Sung Suk, 2025. "The Moderating Role of Capital Adequacy on Bank Specific Characteristics to Sustainable Growth: Evidence From Commercial Banks in Indonesia," SAGE Open, , vol. 15(3), pages 21582440251, July.
    7. Vadim O. Grishchenko & Alexander Mihailov & Vasily N. Tkachev, 2021. "Money Creation in Russia: Does the Money Multiplier Exist?," Economics Discussion Papers em-dp2021-15, Department of Economics, University of Reading.
    8. Resul Aydemir & Huzeyfe Zahit Atan & Bulent Guloglu, 2023. "Bank-specific factors, market conditions and the riskiness of Islamic and conventional banks: evidence from recent quantile approaches," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 17(1), pages 16-44, October.
    9. Habib Ur Rahman & Ghulam Ali & Umer Zaman & Carlo Pugnetti, 2021. "Role of ICT Investment and Diffusion in the Economic Growth: A Threshold Approach for the Empirical Evidence from Pakistan," IJFS, MDPI, vol. 9(1), pages 1-14, March.
    10. Bernardelli Michał & Korzeb Zbigniew & Niedziółka Paweł, 2024. "What drives the profitability of banking sectors in the European Union? The machine learning approach," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 60(4), pages 272-284.
    11. Xiaoyu Yin & Xiujian Wei & Muhammad Irfan & Sonia Yasin, 2023. "Revitalizing Organizational Efficiency: Unpacking the Relationship between CEO Turnover, Research and Development, and Pay-Performance Sensitivities in the Financial Sector of Pakistan," Sustainability, MDPI, vol. 15(13), pages 1-15, July.
    12. Fabian Moodley & Babatunde Lawrence & Surendran Pilla, 2024. "The Relationship between Macroeconomic Variables and South African Commercial Bank Performance," Finance, Accounting and Business Analysis, Academic Publishing UNWE, vol. 6(2), pages 109-119, December.
    13. Jamil Salem Al Zaidanin & Omar Jamil Al Zaidanin, 2021. "The impact of credit risk management on the financial performance of United Arab Emirates commercial banks," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(3), pages 303-319, April.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spt:fininv:v:15:y:2026:i:2:f:15_2_1. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Eleftherios Spyromitros-Xioufis (email available below). General contact details of provider: http://www.scienpress.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.