Effect of Corporate Governance Practices on Profitability of Commercial Banks in Kenya

Abstract

Whereas the Kenyan banking sector remained stable in profit during 2015; from Kshs. 3.2 trillion in 2014 to Kshs. 3.5 trillion in 2015, the period 2012 to 2016 registered declining trends despite the slowdown in global economic growth to 3.1% in 2015 from 3.4% in 2014. This study sought to analyze the effect of Corporate Governance practices on profitability of Commercial Banks in Kenya. A survey was conducted on 13 Commercial Banks in Kisumu County. The findings revealed a positive significant correlation between qualification of board of directors and bank profitability (r=.270, p=.023), role definition and bank profitability (r=.373, p=.001), operational ethical control and bank profitability (r=.623, p=.000), board performance& compensation and bank profitability (r=.335, p=.004) and risk management and bank profitability (r=.561, p=.000). The study concluded that corporate governance has an effect on bank profitability. It was recommended that selected corporate governance dimensions be improved for maximum bank profitability.