Influence of Financial Assets Diversification on Financial Performance of Commercial Banks Listed on Nairobi Securities Exchange

Abstract

In Kenya, while there had been improvements in financial performance of commercial banks that apply asset diversification approach others recorded loses. In this regard, this study examined influence of financial assets diversification on financial performance of commercial banks listed on Nairobi securities exchange. The study was informed by arbitrage pricing theory. The study employed descriptive survey research design and targets 8 relevant section heads/portfolio managers in each of the listed banks who made a total of 88 respondents, thus a census method was employed to avoid sampling bias. Primary data was collected from the key section senior management. Content validity was used to test instrument validity while Cronbach alpha coefficient was used to test instrument reliability. Descriptive analysis such as frequencies, means, and standard deviation was utilized whereas analyzed data presented in tables and graphs, while inferential statistics assessed nature and the strength of the relationships. SPSS version 24 is the computer-based analysis software that was used to compute statistical data. The results revealed that there is significant influence of financial assets diversification on financial performance of commercial banks listed on Nairobi securities exchange at 5% significance level. Overall, financial assets diversification significantly accounted for 56.6% of variation in financial performance of listed commercial banks. The study therefore concluded that financial assets diversification is a significant predicator of financial performance. The researcher through the study findings recommended that commercial bank managers to reviews existing financial assets diversification plan, specifically on other investments in order to realign what might be causing such trends. This should involve putting across strategies and plans for diversifying and utilizing financial assets in a way that translates to positive performance