Effect of Liberalized Financial Policy on Commercial Banks Performance in Kenya

Abstract

The objective of this study is to examine the effect of liberalized financial policy on commercial banks performance in Kenya. This study moves away from popular scholarly discussion focused on the impact financial controls have on commercial banks performance and focus on how banks perform in a liberalized economy. Ordinary leastsquares regression was used to study the impact of financial growth, average customer deposit, level of intermediation and financial liberalization on bank performance. A model for predictability of financial performance was developed. Regression analysis is undertaken to empirically investigate the determinants of financial policies by employing annual data for the commercial banks for the period 2008 to 2015. The research model developed illustrates the relationship between financial growth, average customer deposit, level of intermediation and financial liberalization and governmental financial policy. The study provided a model in which governmental agencies and other financial institutions can utilize to aid them develop sound financial policy that will be beneficial to both commercial banks and customers as well. This paper provides critical insight to the proper development of sustainable financial policies designed for financial institutions in Kenya that will have a positive impact on economic growth and on investor‟s wealth. From the study, it is evident that financial liberalization affects commercial banks performance. Commercial banks profitability is impacted negatively in an era of financial regulation.