Effect of Financial Market Securities on Performance of Commercial Banks in Nyeri County, Kenya

Abstract

Commercial banks are supposed to develop products and services that enable increment of revenue in terms of commission and main income. Nevertheless, the Kenyan commercial banks have previously experienced declined profitability from their operations in the financial year 2019/2020. The general objective was to determine the effect of financial market securities on performance of commercial banks in Nyeri County, Kenya. The specific objectives were to evaluate the effect of debt securities, derivative securities, asset backed securities and equity securities on performance of commercial banks in Nyeri County, Kenya. The study was guided by two theories which were regulatory arbitrage theory and financial intermediation theory. Further, the study considered using quantitative descriptive research design in its plan for data collection. Notably, the target population comprised of 16 commercial banks in Nyeri County, Kenya. The respondents comprised of 194 respondents in various departments. They were stratified and sampled using simple random method to have a sample size of 22 supervisors, 19 internal auditors, 27 customer care officers, 58 personal relationship officers, and 46 teller officers hence a total of 172 respondents. Additionally, the study collected quantitative data in form of questionnaires from the respondents and analyzed financial reports. Further, pre-test study was done at Bank of Africa and Stanbic bank in Nakuru County. Reliability of the questionnaires were examined through Cronbach Alpha Coefficient while face, construct and criterion were the types of validity assessed. The study analyzed descriptive statistics like frequencies, percentages and mean. Other inferential statistics analysis done were linear and multiple regression. The findings were that financial market securities had an R of .715 and R square of .511 which was translated that it had a 51.1% impact on performance. Additionally, the p-value was 0.007 which was less than 0.05. This therefore was interpretated that financial market securities positively impacted performance in a significant manner. The conclusion on debt securities was that, commercial papers were unattractive to clients due to high risks of poor performance in wealth generation. On derivative securities, banks were effortlessly surpassed by other firms like investment affiliated companies because of unreliable ICT equipment and programming upgrade on their derivatives trading operations. On asset backed securities, there was low public awareness on what exactly asset-backed securities was all about and how clients earn consistent income from investing in it. On equity securities, they attracted very low interest rates which indicated that the invested amounts attracted no substantive income even after a long time. The recommendations on debt securities, the branch managers should develop policy structure that requires mandatory frequent training on staff to understand how not only main stream banking products operate but also securities such as commercial papers. On derivative securities, there is need to involve NSE so as to be guided on the most stable capital markets for incorporation of updated hardware and software. On asset backed securities, the bank marketing department should develop programs that are vibrant towards letting the public know of their financial securities products. On equity securities, the bank’s management should develop and strengthen various alternatives that client could use in cases where securities attract low interests.