Determinants Of Liquidity Levels Of Commercial Banks Listed On Nairobi Securities Exchange In Kenya
Journal Title: International Journal of Business and Management Invention - Year 2018, Vol 7, Issue 12
Abstract
Liquidity level in the financial sector is key to financial intermediation, economic growth and economic sustainability and key to all nations in the world. This is evident in the development of guidelines and policies on liquidity management.The CBK has set the liquidity ratio at 20%. Despite this commercial banks listed in the NSE posted averages of 37%, 41.9% and 38.6% in 2011,2012 and 2013 respectively according to CBK begging the question of what else determines this liquidity levels other than this statutory requirement. This study purposed toinvestigate the factors that determine the liquidity levels of commercial banks listed on NSE. The study specifically sought to: evaluate the influence of investment strategies, management policies and structure of loans on the liquidity levels of commercial banks listed at NSE. The anchor theory is the Keynesian theory on liquidty preference. A cross sectional approach and correlational research design was used. The target population for the study comprissed of 254 divisional and departmental managers where a sample of 64 was selected using stratified random sampling techique. Data was collected using a questionnaire which was pre-tested to identify errors. Pretest data using test-retest method had a correlation of 0.782 indicating high levels of reliability. Analysis of data was done using descriptive and regression analysis.The regression model indicated that there was correlation between the independent and dependent variables with an R of 0.247 at p >0.05. The results show that with a one unit change in the investment strategies of the bank the liquidity levels will increase by approximately 0.595 at p> 0.08. Secondly with a one unit change in loan structure of the banks it alters liquidity levels by approximately 1.480 at p<0.009. Lastly with one unit change in management policy the liquitity levels change by -1.754 at p>0.006. The study concluded that all the independent variables affected liquidity levels but at varying extents. However structure of loans was established to have more positive effect on liquidity levels .Although management policy had a negative effect it had the highest correlation with liquidity levels. The research recomends that banks must undertake due diligence on their investments options , further classify the loan structures to include very short term and very long term classes and that managerial decision be made based on factual information and data rather than intuition to ensure profitability and a better managed level of liquidity.
Authors and Affiliations
Albert Washington Ochung Tambo, Phyllice Gitumbi
Keywords
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