Debt Financing and Financial Performance of Commercial Banks in Nairobi County

Abstract

Debt financing has a substantial effect on commercialized banks' financial public presentation, especially for those with low equity capitalization ratios relative to total assets. This is especially important considering the present trend of commercialized banks pursuing capital-intensive expansion projects. Because of this, a lot of banks are using debt financing to get the cash they need. Given this, the intention of this work was to determine the association between debt financing and financial public presentation in this particular setting by examining the impact of debt financing on the profitableness of commercial banks in Nairobi County. This study specifically looked into how interbank borrowings, debt-to-equity ratios, long-term debt-asset ratios, and short-term debt-asset ratios affected the financial performance of Commercial Banks. The researcher was able to get information about debt financing methods because to the descriptive study approach. The target population consists of commercial banks, namely 43 of them that were established in Nairobi County between 2004 and 2022 and have their headquarters there. Because the population was so small, a census was used for the study. Secondary data from the annual financial reports published by CBK and reports released by the 43 commercial banks listed annually was used in this study. Version 23 of SPSS program was used to analyze the data. Utilizing Pearson Correlation Analyses, the link between the independent variable of banks' financial performance. In addition, linear regression was used to analyze the impact of independent factors on commercial banks' financial performance. Hypothesis testing revealed a considerable influence on commercial bank performance. The short term ratio was discovered to be a predictor of financial performance for commercial banks in Nairobi. Furthermore, the correlation coefficient of debt equity ratio was statistically significant in predicting the financial performance of Nairobi's commercial banks. The debt equity ratio had a beneficial and considerable impact on the performance of commercial banking institutions in Nairobi City County. The report suggests that business banks in Nairobi County, Kenya, always develop measures to maintain their accounts payable, since this will result in accrued bend on assets.