Effect of Firm Competitiveness on Financial Performance of Commercial Banks in Kenya

Abstract

Banks have operated in a relatively stable environment for a long time. However, deregulation of financial systems across the globe in mid 1990s caused fierce competition among banks. In today’s dynamic business environment, firm competitiveness has become very important for firm’s survival and growth and to enhance their financial performance. This study sought to establish the effect of firm competitiveness on financial performance of commercial banks in Kenya. The target population comprised the 39 commercial banks licensed in Kenya for a period of 10 years from 2011-2020. Secondary data was obtained from published financial statements from commercial banks, annual banking supervision reports from CBK and Banking Survey Reports and analyzed using Eviews statistical software. The study findings infer that were market share had a negative statistically significant effect on financial performance of commercial banks in Kenya while bank assets did not have a significant effect on financial performance of commercial banks in Kenya. It was also established loan portfolio portfolio had a significant positive effect on financial performance of commercial banks while level of deposits was dropped because of multicollinearity problem with loan portfolio. Premised on the findings, it is recommended that banks should avoid investing in expanding their market share and increasing their asset base as it may not improve profitability of commercial banks. It also recommended that banks should consider increasing their loan portfolios as it boosts financial performance of commercial banks.