Asset Management on the Profitability of Commercial Banks in Kenya

Abstract

Purpose: Asset management plays a critical role in commercial banks’ profitability by promoting the efficient use of assets to generate income. This study examined the relationship between asset management and the profitability of commercial banks in Kenya, motivated by inconsistent findings in previous empirical studies and the need for further evidence within the Kenyan banking sector. Design/Methodology/Approach: The study was of a positivist design and used a longitudinal panel data (38 banks by 10 years, 2014-2023) to give 380 bank-year observations. Secondary data were sourced from Central Bank of Kenya and published financial statements for commercial banks. Descriptive statistics, correlation analysis, and panel regression were used to analyze the relationship between asset management and profitability. Diagnostic tests were performed to test whether the data is suitable, and the Hausman specification test was used to test which panel estimation model is suitable. Findings: The results found that there was a positive relationship between asset management and profitability that was statistically significant, with the asset management coefficient obtained of 0.0050 (p<0.001). The findings show that there is a positive relationship between the utilization of bank assets and profitability. Based on the findings, the study suggests that efficient asset management is one of the key factors that leads to profitability of the commercial banks in Kenya. Implications/Originality/Value: The study concludes that effective asset allocation, utilization, and monitoring can reduce non-performing assets, improve income generation, and enhance the profitability of commercial banks in Kenya.