Effect of Trade Finance on Financial Performance of Tier 1 Commercial Banks in Kenya
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Date
2020-07
Authors
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Journal ISSN
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Publisher
Daystar University, School of Business and Economics.
Abstract
The purpose of this study was to determine the impact of trade finance on the financial performance of tier 1 commercial banks in Kenya. Its objectives were to describe the trade finance revenue streams of Tier 1 commercial banks, establish the moderating effect of capital adequacy on the relationship between trade finance and financial performance, establish the moderating effect of bank size on the relationship between trade finance and financial performance, and examine the effect of trade finance on financial performance of Tier 1 commercial banks in Kenya. Descriptive and longitudinal research designs were used and the target population comprised 9 tier 1 commercial banks in Kenya. Data was collected from reports of the Central Bank of Kenya and covered 11-year duration (from 2008 and 2018). The data was analyzed using the Statistical Package for Social Sciences (SPSS) version 22 and STATA. Descriptive and inferential methods helped in coming up with statistical results from the quantitative data. The findings revealed that fees and commissions and foreign exchange trading income had been increasing over the years although there were slight fluctuations. The total capital and the total assets had also been increasing over the years although there have been slight fluctuations. There was a strong, positive and statistically significant relationship between fees and commissions, foreign exchange trading income, total capital and the total assets on the financial performance tier 1 commercial banks in Kenya. It was concluded that three sources of trade finance, that is, fees, commissions and foreign exchange were key in enhancing the financial performance of tier 1 commercial banks. It was also concluded that increasing the capital and total assets will lead to increase in financial performance of Tier 1 commercial banks. The study recommends that operations of commercial banks need to be fostered towards investment in trade finance revenue streams to increase the fees and commissions and the foreign exchange trading income. Further, commercial banks need to grow sufficient capital to enable them to fund their operations and to also ensure safety of depositors’ savings.
Description
Master of Business Administration
in Finance
Keywords
Trade Finance, Financial Performance, Commercial Banks, Kenya, Tier 1 commercial banks
Citation
Ndung’u, H. K., (2020). Effect of Trade Finance on Financial Performance of Tier 1 Commercial Banks in Kenya. Daystar University, School of Business and Economics: Nairobi