Non-Interest Income and Financial Performance of Listed Commercial Banks in Kenya

Author(s)

Lukandu Washika Stanley , Prof. Willy Mwangi Muturi ,

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Volume 12 - April 2023 (04)

Abstract

Despite significant financial sector changes in Africa in the 1980s and 1990s, commercial banks' financial performance has remained weak, unproductive, and ineffectual in regard to the overall performance of financial revenues stability and earnings boost stream. As financial institutions struggle to maintain and boost their financial viability in the face of diminishing income, primarily as a result of an over-reliance on interest rate income, commercial banks' diversification into noninterest income has steadily expanded. As an integral part of the monetary sector, commercial institutions play an important part in the well-planned cash withdrawal from borrowers and investors, enabling various parties, investors, and banks to gain big profits. The demographic targeted by this study consisted of the 42 commercial banking financial institutions that would hold official licenses from the Central Bank of Kenya by December 2021. Using panel data methods from random and fixed effects models, the four research areas were assessed. Using panel cointegration approaches with random effect and fixed effect assumptions, the four hypotheses were assessed. According to the study findings, Fees and commissions, trading income streams, income from foreign currency, and other income diversification, all had a major positive impact on financial profitability. The study concluded that there was a positive relationship between noninterest income and the financial performance of Kenyan commercial banks, that unrelated revenue streams lower the risk of a sudden, unexpected outcome and in a diversified interest revenue stream. The study recommended that there should exist risk mitigation measures set aside through revenue diversification. Commercial banks should diversify their activities to promote profitability, confidence, develop marketing policies that will boost income earnings and businesses operations growth.
Objective: The general objective of this study was to investigate how noninterest income affects the financial performance of listed commercial banks in Kenya.

Keywords

Non-interest Income; Performance; Profitability; Income Streams; Commercial Banks, Fixed Effects.

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