Impact of Asset Quality Compliance on Financial Performance of Nairobi Securities Exchange Listed Commercial Banks

Abstract

Asset quality compliance is relatively important; however, the banking sector has undergone major financial shocks due to compliance signals. With losses experienced among commercial banks, for instance, return on assets (ROA) dropped consistently from 29% to 24% in 2019 to 21% in 2020, hence the wrong signals. The decline in the number of assets and low deposits further magnified the challenge; this led to the closure of a number of banks, such as Chase Bank and Charterhouse Bank. Furthermore, a national bank was acquired by Kenya Commercial Bank due to inefficient assets. The purpose of the study was to establish the influence of asset quality compliance requirements on the financial performance of commercial banks listed on the Nairobi Securities Exchange and hence determine the null hypothesis that asset quality compliance requirements have no significant effect on the financial performance of commercial banks listed on the Nairobi Securities Exchange. A mixed research design was applied to a population of 12 commercial banks listed at Nairobi Securities Exchange Kenya. This is comprised of causal research designs and longitudinal designs. The study employed a mixed research design and collected secondary data for a period of 5 years. The study found that asset quality requirements had a significance level of P<0.05, thus P = 0.0268, implying significance. The study concluded that assets have a significant impact on banks financial performance. The study recommends that commercial bank stakeholders should invest in assets since they lead to financial performance. The study may benefit a number of people, including bank management, the government, and future scholars.