Asset Quality and Financial Performance of Commercial Banks in Kenya

There has been a tremendous increase in non-performing loan in the recent past as a result of poor loan quality and poor management of demand deposits in the recent past resulting to closure of various banks in Kenya. These has resulted to the decline in banks overall decline in return on equity. The study’s aim was to determine effects of asset quality on financial performance of the commercial banks. The study target population was 43 commercial banks. The study adopted a census sampling design where causal research design was used. The study made use of secondary data and regression model was utilized.  Statistical package SPSS was used for data analysis. Complete secondary data for the period 2013 to 2017 from 34 commercial banks was analyzed and presented in tables. This represented 79 per cent of the target population. The findings presented that there was a low variation in asset quality ratio amongst the commercial banks. The results showed that the average ROE for period 2013 to 2017 had huge significant dispersion amongst the selected commercial banks in Kenya. The study found that the average performance of the commercial banks for the year 2013 to 2017 as indicated by ROE was on the decline. The study concluded asset quality significantly explains the changes in the financial performance of commercial banks in Kenya.