Fixed Asset Structure and Financial Performance of Commercial Performance of Commercial Banks Listed at Nairobi Security Exchange

Abstract

Stiff competition has made some of the commercial banks perform better than others in the Nairobi Securities Exchange. To ensure their survival in this competitive environment as far as financial performance is concerned, commercial banks are putting in place competitive strategies to enhance their performance. The decision to choose the right fixed asset structure has become one of the key strategies in commercial banks to counter stiff competition experienced as far as financial performance is concerned. The objective of this study was to determine the relationship between fixed asset structure and the financial performance of commercial banks listed in the Nairobi Securities Exchange. The population of the study was the 11 commercial banks listed in NSE. A descriptive research design attributed to a census approach aiming at the eleven listed commercial banks in NSE was applied. The research relied on secondary data obtained from the audited financial statements of the said banks from 2014-2018. A document analysis guide was used to collect data from the financial statements. Quantitative data was analyzed using SPSS that generated both descriptive and inferential statistics. The dependent variable was the financial performance while the independent variable was the fixed asset structure. Pearson’s correlation coefficients showed that ROA had a negative correlation with the financial performance (r=-0.888 p<0.05). Immovable fixed assets revealed a positive correlation with financial performance (r=0.086 p>0.05). The study also revealed a positive correlation between movable fixed assets and the financial performance (r=0.817 p>0.05). Bivariate analysis indicated that immovable fixed assets had a positive impact on the financial performance of the commercial banks studied with the beta coefficients; β = 0.31, p>0.05. The results also reveal that moveable fixed assets have a negative impact on financial gain (β =-0.110, p> 0.05). The analysis of the results showed that correlation between immovable fixed assets and financial performances of commercial banks listed in NSE in the year 2014 to 2018 was positive. An increase in immovable fixed assets led to a growth in commercial banks’ financial performances during the 5 years of study. It was established that banks with higher investment in immovable fixed assets tend to have a higher return on assets; hence an increase in financial gain as far as ROA is concerned. The findings showed that movable fixed assets and financial performance of commercial banks under study were negatively correlated. It stated that an increase in movable fixed assets would lead a drop financial performance of the 10 commercial banks under study. The recommendation for this research study is that these commercial banks should limit their investment in this variable, ensure that there is enough utilization and reduce costs expenses. Based on the conclusions of the research, the managers of financial institutions should guarantee that movable fixed assets are properly utilized in order to enhance their revenue statements. They need to also invest in immovable fixed assets and maximize the use of those that already exist. This study also gives recommendations to the finance profession, recommending that while developing financial rules and standard operating procedures, banks fixed asset structure should be given more consideration. Because fixed asset structure has such a big impact on financial performance, it should be taken into account to keep budget control and ensure the banks' long-term financial success.