Effect of Macroeconomic Factors on the relationship between Asset Liability Management and Profitability of Commercial Banks in Kenya

Abstract

The study sought to establish the influence of macroeconomic factors on the relationship between asset liability management and profitability among commercial banks in Kenya. The study was anchored on liability management theory. The study also drew its theoretical support from commercial loan theory, the market power theory and the efficient structure theory. The study was guided by the positivism philosophical paradigm and a cross sectional descriptive design adopted. The population of the study was the 42 commercial banks in Kenya that were operational between 2015 and 2020. Secondary data was obtained from the annual reports of CBK and audited banks' financial statements from 2015 to 2020. Data was analyzed using descriptive and inferential statistics. The findings indicated that asset liability management had a statistically significant influence on the profitability among commercial banks in Kenya. Macroeconomic factors were found to have a statistically significant influence on the relationship between asset liability management and profitability among commercial banks in Kenya. The study has contributed to theory, policy and management in relation to how macroeconomic factors influences relationship between asset liability management and profitability among commercial banks in Kenya. In light of these findings, banks should ensure that asset liability management policies are crafted based on appropriate strategies for profitability enhancement. The study recommends that policy makers should enhance the economic growth and develop strategies to control inflation levels for the banking sector to thrive.