LIQUIDITY AND FINANCIAL PERFORMANCE OF CONVENTIONAL AND ISLAMIC BANKS IN KENYA: A COMPARATIVE STUDY

Abstract

The objective of the study was to examine the comparative effect of liquidity on financial performance for Conventional and Islamic Banks in Kenya.  The commercial loan and shift-ability theories of liquidity management served as the theoretical basis of the study. Relevant empirical literature was carried out. The research used a longitudinal study design. The target population consisted of all the 38 banks registered in Kenya for the periods of their operations. A cross-section purposeful sample based on registration with the Nairobi Security Exchange and Sharia compliance yielded a sample of 14, of which 11were conventional and 3 Sharia-compliant banks. The period of study was 2015 – 2021. Secondary data was collected from the banks’ websites. The collected data was subjected to descriptive, diagnostic, and specification tests and treated of any abnormalities with time series/panel data. The panel least squares approach was utilized for analysisng the data using the eviews software. According to the findings liquidity had a negative significant and positive significant effect on the respective financial performance of conventional and Islamic banks. The study concluded that liquidity had an impact on the performance of both conventional and Islamic banks. The study recommended that banks should maintain optimal liquidity.