Effect of Capital on the Financial Performance of Commercial Banks in Kenya
Keywords:
Basel capital adequacy framework, Capital adequacy, Core capital, Subordinate capital, Risk weighted capitalAbstract
This study sought to examine the effect of capital on the financial performance of commercial banks in Kenya. The specific objectives of the study were to determine the effects of core capital, subordinate capital and risk weighted capital on the financial performance of commercial banks in Kenya. The study adopted a descriptive research design. The target population was the listed commercial banks in Kenya as licensed by the Central Bank of Kenya as of 2014. The study was based on secondary data retrieved from the banks’ annual audited financial reports spanning 5 years between 2010 and 2014. The study was based on quantitative data. The study findings showed that the core capital to total risk weighted assets for the Tier I banks decreased from year 2010 to year 2014 while that of the Tier II banks decreased from year 2010 to year 2014. The findings also showed that the total capital to total risk weighted assets for the Tier I banks decreased from year 2010 to year 2014 while that of the Tier II banks decreased from year 2010 to year 2014. The findings further showed that both Tier I and Tier II banks maintained their core capital to total risk weighted assets ratios and their total capital to total risk weighted assets ratios at a significantly higher level than the set minimum requirement of 8% and 12%, respectively.
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