Abstract:
Financial Intermediation efficiency is an important component of any successful organization due to the stiff competition in the business environment. For Commercial banks, financial efficiency provides a basis for determining the optimal combination of inputs to produce a given or target level of output. The efficiency of the financial sector therefore supports the stability of the financial system and economic development through elimination of in efficiencies. The study therefore sought to examine the effect of financial intermediation efficiency on the performance of commercial banks in Kenya. The study targeted commercial banks listed on the Nairobi Securities Exchange for the period 2006 to 2017. The dependent variable of the study was performance, measured by the return on assets. The predictor variables were financial management efficiency, corporate governance structural efficiency, financial information efficiency and financial services efficiency. The study adopted the mixed research design, which involved collection and analysis of primary and supported by secondary data to explain the relationships among the variables under investigation. Primary data was collected using structured, closed ended questionnaires. Secondary data was used to corroborate the logical validity of primary data. Secondary data was obtained from published annual financial reports of the banks under study and as used in other related researches. The target study units for this research were all commercial banks listed on the Nairobi Securities Exchange. Statistical analysis was carried out using Statistical Package for Social Sciences software. Further, multiple regression analysis was used for data analysis so as to provide robust result output. The results showed that there is a strong and positive relationship between financial efficiency and performance of commercial banks proxied by return on assets. The study rejects the null hypothesis, and concludes that, there is a significant relationship between financial efficiency and performance of commercial banks in Kenya. The results of this study are of great benefit to various stakeholders including but not limited to bankers, researchers, regulatory authorities and academicians. The study recommends that in order to ensure improved profitability and sustained earnings ability of commercial banks, there is need to concentrate on strategies, geared towards efficiency improvement as a catalyst for better performance. Specifically, bank size, capital adequacy, liquidity risk, leverage and market capitalization are the critical parameters that must be closely watched to ensure improved Technical efficiency. Similarly, corporate governance structures need to be strengthened on aspects of board structure and composition, Transparency, Disclosure and Governance practices. Further, banks need to enhance the efficiency of information provision and service delivery by leveraging on technology. The regulatory authorities should also develop and enforce policy and closely monitor their implementation, on minimum capital requirement and degree of acceptable leverage and risk exposure in the banking sector.
