Loan Portfolio Growth and Financial Performance of Commercial banks in Kenya
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Date
2024Author
Thiong’o, Paul Kiama
Kilungu, Matata
Kamau, Charles Guandaru
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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