Influence of Asset Allocation on Financial Performance of Commercial Banks in Nairobi County, Kenya

Abstract

The study evaluated the influence of asset allocation on financial performance of commercial banks in Nairobi County, Kenya. Descriptive research design was used in data collection process among 38 commercial banks in Nairobi County, Kenya. Therefore, the study obtained a sample size of 11 banks using a simple random sampling method whose 24 portfolio managers, 21 risk officers, and 36 portfolio management officers, were used as respondents. Data was analyzed using descriptive statistics and regression analysis. The R-value was 0.702 while R-square was 0.692, which indicated that asset allocation had a 69.2% influence on financial performance. The p-value was 0.004 which was less than 0.05 hence enabling the study to reject the null hypothesis that asset allocation had no significant influence on financial performance of commercial banks. The study concludes that the institutions had minimally invested in an advanced variety of investment software that would aid them in allocating assets to various investment vehicles. The banks had invested in establishing ICT hardware but not in the advanced software part. As a result, the staff were overburdened with portfolios that required them to be present at all times for monitoring. Therefore, when they burnt out, most of them resigned for more efficient investment institutions, thereby leaving the client’s assets at risk of losses. The study recommends that the bank board should release funds to finance various installations of updated software. The management should also go ahead and source trainers to train the investment staff on how best to utilize the software to make the best out of it.