Influence Of Central Bank Prudential Guidelines On Performance Of Commercial Banks In Kenya

Abstract

The Central Bank plays a dominant role in both the decision making and managerial process taking place in the economy while other banks do provide the essential financial services needed for effective operation of the economy. Prudential guidelines are issued by CBK to safeguard consumer against risk that can arise due to un-coordinated banks supervisory activities. These regulations comprise adherence and enforcement of the rules and policies sets and also compliance of the critical banks asset management policies, financial capacity of the banks and its managements. Despite introduction of CBK prudential regulations 2006 governing commercial banks in Kenya, there are very few systematic studies that critically assess how regulations have affected the financial performance of commercial banks. The study aimed to investigate influence of central bank prudential guideline on financial performance of Commercial Bank in Kenya. The investigated effect of risk management guidelines, corporate governance and loss prudential on financial performance of Commercial Bank in Kenya. Public interest theory, capture theory of regulation and public choice theory were adopted to support on the research literature relating to CBK prudential regulations. The study aimed at analyzing the influence of central bank prudential guideline on financial performance with focus to Commercial Bank in Kenya. The target population of the study was 43 commercial banks regulated by CBK 2017. The study used a census since the number of the banks is manageable. Primary data was collected through the use of questionnaires, data was analyzed by use of SPSS software and presentation of descriptive and inferential statistics done in table and charts. Theregression coefficient showed that loan loss prudential guidelines, risk management guidelines and corporate governance guidelines have impact on the financial performance of commercial banks in Kenya. Loan loss prudential guidelines increases financial performance of commercial banks by 0.605. Corporate governance guidelines increase financial performance of commercial banks by 0.576 and risk management guidelines increases commercial banks financial performance by 0.638 units. The study recommends CBK needs to promote their prudential regulations guidelines to the commercial banks by formulating supportive financial policies to bring value to the commercial banks by not only restricting them but also involving banks in their shared vision.