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Macroeconomic Dynamics and Profitability of Insurance Firms Listed atNairobi Securities Exchange, Kenya
(Stratford Peer Reviewed Journals and Book Publishing, 2024-04) Dr. Job Omagwa; Milka W. Muteru
Kenya’s insurance industry has been growing steadily since 2013, with premium revenue and capital investment increasing. However, Return on Assets has declined over the past four years and reached an all-time low in 2022 compared to the previous five years which was partly attributed to the reforms introduced to cater the impact of Corona virus pandemic on and the need to close infrastructure gaps. As a result, as gross domestic product grows, firm deposits and loans rise along with interest income and loan losses. This study focused on understanding how macroeconomic dynamics affect the profitability of insurance companies listed on NSE in Kenya. It particularly looked into how changes in exchange rates, interest rates, and the overall price rise in the economy (inflation) influence these companies' profits. The study was guided by the theoretical frameworks of purchasing power parity, deflation, the balance of payment, the classical theory of interest, and the balance scorecard model. The study adopted an explanatory research design and targeted the six insurance firms listed on the NSE. The secondary data collection for this study involved the utilization of secondary data sheets. Data was obtained from the official audited financial statements of the insurance firms for the fiscal years 2016 through 2022. Data analysis involved both descriptive and inferential analysis. Inferential analysis incorporated both correlation analysis and panel regression analysis. The study found that key macroeconomic dynamics had significant impact on the profits of insurance companies listed on the NSE, explaining 57.71% of the changes in profits (R-squared = 0.5771). It discovered that while changes in the exchange rate do not significantly affect profits (β = 0.0761, p = 0.5358), higher interest rates lead to higher profits (β = 2.1647, p = 0.0233), and inflation negatively impacts profits (β = -0.3447, p = 0.0011). The study's validity is supported by strong statistical evidence (F-statistic = 21.0100, p-value = 0.0000). It suggests that insurance companies in Kenya should focus on managing risks related to economic changes to improve their financial performance. This research adds to the understanding of how macroeconomic dynamics affect the profitability of insurance firms in the context of the NSE.
Transaction Monitoring Effect on Profitability of Commercial Banks in Kenya
(EdinBurg Peer Reviewed Journals and BooksPublishers, 2024-05) Dr. Job Omagwa; Obed Kipkirui Terer; Lucy Wamugo Mwangi
Commercial banks' performance is fundamental to the economy as providers of financial services. In offering this service, commercial banks are exposed to a range of risks that negatively affect financial position and ultimately influence profitability. Profitability is indicative of a bank's stability and potential for growth. Enhancing commercial banks' profitability contributes to shareholder return on investment. In June 2018, five banks were fined a total of Kshs. 392 million by the Central Bank of Kenya for breaching anti-money laundering regulations. Consequently, banks had to invest resources to improve their anti-money laundering measures. Consequently, raising operational and compliance overheads. This study sought to determine the effect of transaction monitoring on profitability of commercial banks in Kenya. The research employed an explanatory research design. The targeted population comprised all the thirty-nine regulated commercial banks as of December 31, 2021. The study period was eight (8) years (2014 to 2021). Respondents were chosen through purposive sampling. Primary data was gathered using structured questionnaires, while secondary data was derived from audited financial reports of commercial banks and the annual banking supervision report from the Central Bank of Kenya. Subsequently, the collected data underwent analysis employing descriptive statistics and regression analysis. The research results disclosed that transaction monitoring positively and significantly influenced commercial banks profitability. Consequently, bank managers should incorporate transaction monitoring into their operations to augment the overall efficacy to detect and report potentially suspicious activities, and to strengthen operational controls.
Working Capital Management and Profitability of Tea Processing Firms in Aberdare Ranges Region, Kenya
(The Strategic Journal of Business & Change Management, 2024-04-27) Dr. Job Omagwa; David Njathi Wanyoike
This research determined the effect of working capital management on profitability of tea processing firms in the Aberdare Ranges region of Kenya. The empirical investigation was anchored on the liquidity preference theory, the operational cycle theory, and the theory of profitability-liquidity trade-off. This study adopted a descriptive survey approach and target tea processing factories in the Aberdare ranges region of Kenya under the Kenya Tea Development Authority management. The study adopted purposive sampling to target unit managers, procurement managers, and finance managers as the chosen respondents as they possess the necessary data for the study. A census approach was adopted as the sampling design focusing on all 21 tea processing firms in Aberdare ranges region in the study. The study utilized both primary and secondary data that was collected by use of questionnaires and data collection sheets, respectively. The study considered a five-year span from 2017-2021. Multiple linear regression analysis, correlation analysis, and descriptive analysis were used to analyse data. The results were displayed as graphs, charts, and tables. The study found that cash management had a positive and significant effect on the profitability of tea processing firms in the Aberdares region of Kenya. In addition, inventory management had a significant and positive effect on the profitability of tea processing firms in the Aberdares region. The findings also indicated that debt management had a positive and effect on the profitability of tea processing firms in Aberdares region of Kenya. Further, the study established that credit management had a positive and significant effect on the profitability of the tea processing firms in Aberdares region of Kenya. The study recommends that the management of tea processing firms should make use of cash budgeting, review of target cash balance and preparation of cash flow statements to improve the profitability of their firms. In addition, tea processing firms should make use of effective and efficient order management as a strategy for inventory management so as to improve profitability. By implementing effective order management strategies, businesses can optimize inventory levels, minimize stock outs, and improve customer satisfaction.
Bank-Specific Characteristics, Bank Concentration and Financial Distress of Commercial Banks in Kenya
(International Academic Journal of Economics and Finance (IAJEF), 2024-11-02) Dr. Job Omagwa; Mary Wangechi Githinji; Dr. Eddie Simiyu
Empirical evidence on the banking industry in Kenya indicates that local banks have been prone to financial distress. Commercial banks in Kenya have been experiencing cycles in Financial Distress and though such cycles have been precipitated by Bank-Specific Characteristics in other countries. It is still a challenge for empirical investigation as to know whether Bank-Specific Characteristics significantly affect Financial Distress in Kenya’s banking industry. Subsequently, the basis of this research was to evaluate the connection between Bank-Specific Characteristics and Financial Distress of commercial banks in Kenya. Explicitly, the research was informed by determining the moderating effect of bank concentration on the connection between bank-specific characteristics and financial distress of commercial banks in Kenya. The Gambler’s ruin theory, Wrecker’s theory, Agency theory and Institutional theory provided theoretical anchorage to the research. Positivism research philosophy and causal research design were adopted for the study. The research was a census of all the 36 fully operational commercial banks in Kenya for the period
2011 through 2019. Secondary data was utilized in this study. Data sources included: websites of the CBK and individual Commercial Banks, audited financial statements and Annual supervision reports. Data analysis entailed use of descriptive and inferential statistics where the latter involved dynamic panel logistic regression analysis. Diagnostic tests undertaken in the study included: model specification, stationarity, autocorrelation, and multicollinearity tests. Hypotheses were tested at a significance level of 0.05. Data was displayed through frequency tables and graphs. Based on the dynamic panel Logistic regression analysis, the research revealed that Bank Concentration had a significant moderating effect on the connection between Bank Characteristics and Zmijewski Score (p=0.0003). The study recommended that CBK should take into account bank concentration when designing policies and strategies for commercial banks. Specifically, regulators of commercial banks should consider the level of bank concentration in a particular market and how it can affect the relationship between different bank-specific characteristics and financial distress. This could involve measures such as encouraging competition among banks, regulating mergers and acquisitions, and promoting diversity in the banking sector to mitigate the negative impact of bank concentration on financial stability.
Analyzing the Effect of Liquidity on Financial Stability: Evidence from Kenyan Deposit-Taking Savings and Credit Cooperative Societies
(Stratford Peer Reviewed Journals and Book Publishing, 2024-05) Dr. Job Omagwa; Hesborn Birisi Birisi; Salome Musau
Non-performing loans have been on the rise among DT SACCOs in Kenya over the past five years as evidenced by the increase in percentage of NPLs to gross loans in SACCO regulatory authority report of 2020. Consequently, if this trend is allowed to continue then this sector’s contribution to financial intermediation through provision of financial services will be negatively affected. In view of the above this study sought to investigate the effect of firm characteristics and financial stability of deposit taking savings and credit cooperative societies in Kenya. In view of the above this study sought to assess the effect of liquidity on financial stability of deposit taking savings and credit and cooperative societies in Kenya. The study was anchored on agency theory. Positivist research philosophy was adopted in this study. The study adopted explanatory research design. The target population for the study comprised 160 DT SACCOs which were fully operational in the period. A census approach was used for the study. This study utilized quantitative secondary data which was obtained from the society’s financial statements and supervision reports from the savings and credit cooperatives regulatory authority. The study utilized annual panel data for the period of 2017 to 2021. Multicollinearity test, normality tests, autocorrelation test, homoscedasticity, stationarity test and model specification test were carried out prior to panel data analysis. Data was analyzed using descriptive statistics, Pearson’s correlation analysis and panel regression analysis. STATA software was used for the analysis. The findings showed that liquidity had a strong, positive effect on NPLs ratio (β = 0.410056, p=0.003<0.05). In view of the findings, the study recommends that DT SACCOs with high liquidity levels should consider implementing rigorous lending practices to ensure that loans are extended to creditworthy borrowers. Additionally, effective credit risk assessment and continuous monitoring of borrower repayment behavior are essential to minimize NPLs. DT SACCOs should focus on improving management efficiency by implementing cost-effective operational processes.