Moderating effect of bank size on the relationship between financial soundness and financial performance

Abstract

Purpose

This study analyzed the moderating effect of bank size on the relationship between financial soundness and financial performance of commercial banks in Kenya.

Design/methodology/approach

The study employed data from 39 commercial banks for ten years from 2009 to 2018. Panel data regression model was used to analyze data.

Findings

The study results established a negative moderating effect of bank size on the relationship between commercial banks' financial soundness and net interest margin (NIM) and return on assets (ROA) with the results indicating a correlation coefficient of −0.1699 and −0.218, respectively. However, an absence of moderating effect was established when return on equity (ROE) was used as a measure of financial performance.

Practical implications

The paper finding recommends that banks' management and other policy makers should consider the effect of bank size while devising financial soundness policies to ensure optimal level of banks' financial soundness aimed at improving banks' financial performance. In addition, bankers associations should come up with policies to standardize asset quality management practices to ensure continuous positive performance of the banking sector.

Originality/value

The study shows the contribution and applicability of the theory of production in the banking sector.

Citation

Kirimi, P.N., Kariuki, S.N. and Ocharo, K.N. (2022), "Moderating effect of bank size on the relationship between financial soundness and financial performance", African Journal of Economic and Management Studies, Vol. 13 No. 1, pp. 62-75. https://doi.org/10.1108/AJEMS-07-2021-0316