Effects of the Central Bank of Kenya Prudential Guidelines on the Performance of Commercial Banks in Kenya

Bank prudential guidelines are a form of government procedures which subjects the banks to certain requirements, boundaries and strategies. These regulations create transparency between the banks and the customers. It has been proven that the absence of these regulations can affect the banking system. Forming relevant and good rules for banking activities can impact the banking system drastically and increase the performance of the banks. The main aim of the study was to investigate the effects of the Central Bank of Kenya prudential guidelines on the performance of commercial banks. Specifically, the study examined the effects of corporate governance (CBK/PG/02), capital requirement (CBK/PG/03), credit risk management (CBK/PG/04) and liquidity management (CBK/PG/05) on performance of commercial banks in Kenya. The study used descriptive research design because the study intended at find data about the existing effect of the CBK guidelines towards the performance of commercial banks. The target population was all the commercial banks in Kenya. Questionnaires that were conducted on a face to face basis were used in form of primary data collection. The statistics that was collected was obtained from four major departments in the banking industry which were; the finance department; credit department, debt recovery and risk & compliance department from 43 banks. The responses were then analysed to understand the results. The results gathered were cleaned; coded and statistical outputs generated using SPSS. The data mainly used descriptive analysis and inferential statistics to analyze the information. The study found and concluded that performance of commercial banks is highly affects by Corporate governance, Capital requirement, Credit risk Management, Liquidity Management. The study recommended that banks should try and be as transparent as they can so as to avoid penalties from the CBK and also study recommends further study to be conducted on the new interest rate capping regulations that the Central Bank published.