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Research Paper | Finance | Volume 15 Issue 8, August 2026 | Pages: 1665 - 1675 | Kenya
Capital and Liquidity Regulatory Compliance and Financial Performance: Evidence from Commercial Banks in Kenya
Abstract: This study examined the effect of capital and liquidity regulatory compliance on the financial performance of commercial banks in Kenya. The study was motivated by the need to establish whether adherence to prudential capital and liquidity requirements contributes to improved financial performance in the Kenyan banking sector. The study adopted a sequential explanatory mixed-methods design, with quantitative data collected through structured questionnaires and qualitative insights obtained through interviews. The study targeted chief credit officers and chief risk officers of commercial banks in Kenya, with 42 observations used for the analysis. Descriptive statistics were used to assess the extent of compliance, while Pearson correlation and simple linear regression were employed to establish the relationship and effect of capital and liquidity regulatory compliance on financial performance. The descriptive findings indicated a generally high level of compliance, with an overall mean of 3.64. In particular, management's adherence to set liquidity limits recorded the highest mean (M = 3.83, SD = 0.49). Inferential findings showed a strong, positive, and statistically significant relationship between capital and liquidity regulatory compliance and financial performance (r = .792, p = .000). Regression analysis further showed that capital and liquidity regulatory compliance explained 62.7% of the variation in financial performance (R2 = .627). The regression coefficient was positive and statistically significant (Β = .792, t = 8.179, p = .000), while the overall regression model was statistically significant (F = 67.143, p = .000). The study rejected the null hypothesis and concluded that capital and liquidity regulatory compliance has a significant positive effect on the financial performance of commercial banks in Kenya. The study recommends that the Central Bank of Kenya strengthen supervisory oversight of capital and liquidity requirements, while commercial banks should enhance liquidity monitoring, stress testing, contingency planning, and compliance mechanisms to support sustained financial performance.
Keywords: Capital Adequacy, Liquidity Regulation, Regulatory Compliance, Financial Performance, Commercial Banks, Kenya
How to Cite?: Stephene O. Magadi, "Capital and Liquidity Regulatory Compliance and Financial Performance: Evidence from Commercial Banks in Kenya", Volume 15 Issue 8, August 2026, International Journal of Science and Research (IJSR), Pages: 1665-1675, https://www.ijsr.net/getabstract.php?paperid=SR26822112546, DOI: https://dx.doi.org/10.21275/SR26822112546