Abstract:
Well-functioning commercial banks contributes directly to the growth of any economy. However,
despite the mitigating efforts by the central bank of Kenya, commercial banks have recorded a decline
in financial performance as shown by reduction in return on assets over the period of study (2013-
2020), that is; 4.7% in 2013, 3.4% in 2014, 2.9% in 2015, 3.3% in 2016, 2.7% in 2017, 2.7% in 2018,
2.6% in 2019 and 1.7% in 2020. The study sought to establish the effect of supervisory review and
market discipline on financial performance of commercial banks in Kenya. The target population
comprised of forty-three commercial banks from which a sample of thirty-eight commercial banks was
obtained using purposive sampling. Data analysis involved descriptive statistics and inferential
analysis. The 5% significance level was used to test the research hypotheses. The panel regression
findings showed that supervisory review had a positive significant effect on the financial performance of
commercial banks in Kenya. Market discipline had a positive and insignificant effect on the financial
performance of commercial banks in Kenya. Market share had a negative and insignificant moderating
effect on the relationship between supervisory review, market discipline, and the financial performance of
commercial banks in Kenya. The conclusion of the study was that supervisory review and market
discipline positively affected the financial performance of commercial banks in Kenya. The study thus,
recommends that commercial banks in Kenya should adhere to the prudential guidelines on
the supervisory review so as to enhance financial performance in the long run. |
