Effect of liquidity risk on financial performance of commercial banks in Kenya.

Abstract

The objective of the study was to assess the effect of liquidity risk on financial performance of commercial banks in Kenya. The theory reviewed was the pecking order theory. The study adopted descriptive research. The target population was 47 senior management, 128 middle management and 303 lower management employees working in the Commercial Banks’ headquarters in Nairobi. The study used stratified sampling technique. To learn more about the interest rate drivers and financial performance of commercial banks, the study used primary data. The reliability and validity of the study tools were examined using a pilot group of 22 participants. With the use of descriptive statistics like means, medians, standard deviations, and proportions, as well as the response rate, quantitative, data was evaluated using SPSS version 28, the statistical tool for the social sciences. To find out what mathematical model revealed the association between variables, multiple linear regression analysis was performed. It is common practice to conduct parametric tests that make assumptions about the data. The study showed that the independent objective namely liquidity risk, positively influenced financial performance of commercial banks in Kenya. The following recommendations were made; enhance liquidity management and strengthen regulatory frameworks for liquidity.