Foreign Direct Investment And Bank Performance In Kenya

ABSTRACT

Foreign direct investment (FDI) is an essential part of any economic system and it is an incentive that allows economies to grow. However the positive results of FDI are not accessed by all countries, communities or sectors. The performance of commercial banks in Kenya has been found wanting for the last five years with some banks reporting profit warnings and two banks being placed in receivership in the year 2015. Similarly, foreign direct investment in Kenya has been fluctuating. The research also sought to assess the effects of equity capital, reinvested earnings and intra-company loans on the Bank performance of Kenya. The research design used for this research is a descriptive research design and positivism research philosophy. The Target population of the study was all the 39 commercial banks in Kenya. Annual data for the period of 2005 to 2015 was used. This study used secondary cross- sectional time-series data, which was obtained from annual financial statements of commercial banks, KNBS, World Bank database and CBK. Two checklists were used for the collection of data. The analysis of the secondary data that was quantitative in nature was done using inferential and descriptive statistics. Descriptive statistics used include frequency distributions, mean, standard deviation and percentages. Inferential statistics included analysis of variance, correlation analysis and multivariate regression analysis. The inferential statistics was used to evaluate the relationship between the dependent and the independent variables. Data was analyzed by use of statistical software known as STATA (version 14) and the results presented in tables and line graphs. Before conducting regression analysis, diagnostic tests such as test for normality, heteroscedasticity test, multicollinearity test, autocorrelation test and unit root test were conducted. The results indicate that foreign equity capital had a significant effect on the Kenya commercial banks return on equity in a positive and significant manner. The study also found that reinvested foreign earnings have a positive and significant effect on return on equity in commercial banks in Kenya. In addition, the study found that intra-company loans affected the Kenyan banks performance in a positive and significant manner. In addition, intra-company loans positively affected the Kenyan commercial bank’s return on equity. The study concludes that foreign direct investment in terms of foreign equity capital, reinvested foreign earnings and intra-company loans, has a significant influence on bank performance in Kenya. According to the recommendation of the research, bank performance in Kenya whose main offices were found in foreign nations should seek to increase their foreign equity capital so as to increase their performance in terms of return on equity and return on assets. The study also recommends that Kenyasn commercial banks from foreign countries should ensure that they increase the percentage of their earninsg that they reinvest as a way of increase performance in terms of return on equity and return on assets. Further, the study recommends that foreign commercial banks in Kenya should make use of intra-company loans so as to improve their perfomance in terms of return on equity.