Liquidity Risk and The Financial Performance of Listed Commercial Banks in Kenya

Prisca Nthenya Mutinda; Gordon Opuodho; Linus Isaac Ochieng'

doi:10.61108/ijsshr.v3i2.204

Liquidity Risk and The Financial Performance of Listed Commercial Banks in Kenya

Authors

Mutinda Prisca Nthenya Scholar, Jomo Kenyatta University of Agriculture and Technology
Dr. Gordon Opuodho, (PhD) Senior Lecturer: Jomo Kenyatta University of Agriculture and Technology
Dr. Linus Isaac Ochieng’(PhD) Senior Lecturer: Jomo Kenyatta University of Agriculture and Technology

DOI:

https://doi.org/10.61108/ijsshr.v3i2.204

Keywords:

Liquidity Risk, Liquidity Coverage Ratio, Return on Assets, Financial Performance, Commercial Banks in Kenya

Abstract

This study examined the impact of liquidity risk on the financial performance of listed commercial banks in Kenya from 2013 to 2023. Using the Liquidity Preference Theory, it employed a longitudinal approach and conducted a census of all 11 banks listed on the Nairobi Securities Exchange (NSE). These banks operate under strict oversight by both the Capital Markets Authority (CMA) and the NSE, which require consistent disclosures, financial reporting, audits, and adherence to corporate governance standards. This regulatory environment promotes transparency in asset-liability management (ALM) and risk control, making these banks an ideal setting for studying the relationship between liquidity risk and financial performance. The research utilized secondary data from annual financial statements and reports from the Central Bank of Kenya. Financial performance was measured using the Return on Assets (ROA) metric. Panel regression analysis revealed a positive relationship between liquidity risk and financial performance, indicating that banks with stronger liquidity risk management tend to perform better financially. The findings suggest that Kenyan-listed banks have maintained consistent and effective liquidity risk management over the decade, which has contributed to their stability during periods of economic uncertainty. Enhanced liquidity management further improved their resilience and financial outcomes. The study recommends that banks maintain sufficient liquidity buffers, conduct regular stress tests, and perform scenario analyses to guard against unexpected liquidity issues and promote sustainable growth.

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Published

2025-09-19

How to Cite

Mutinda , P. N., Opuodho, G., & Ochieng', L. I. (2025). Liquidity Risk and The Financial Performance of Listed Commercial Banks in Kenya. International Journal of Social Science and Humanities Research (IJSSHR) ISSN 2959-7056 (o); 2959-7048 (p), 3(2), 209–224. https://doi.org/10.61108/ijsshr.v3i2.204

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Issue

Vol. 3 No. 2 (2025): International Journal of Social Science and Humanities Research (IJSSHR) ISSN 2959-7056 (o); 2959-7048 (p)

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