Transaction Monitoring Effect on Profitability of Commercial Banks in Kenya
DOI:
https://doi.org/10.70619/vol4iss1pp18-27Keywords:
Transaction Monitoring, Profitability, Commercial BankAbstract
Commercial banks' performance is fundamental to the economy as providers of financial services. In offering this service, commercial banks are exposed to a range of risks that negatively affect financial position and ultimately influence profitability. Profitability is indicative of a bank's stability and potential for growth. Enhancing commercial banks' profitability contributes to shareholder return on investment. In June 2018, five banks were fined a total of Kshs. 392 million by the Central Bank of Kenya for breaching anti-money laundering regulations. Consequently, banks had to invest resources to improve their anti-money laundering measures. Consequently, raising operational and compliance overheads. This study sought to determine the effect of transaction monitoring on profitability of commercial banks in Kenya. The research employed an explanatory research design. The targeted population comprised all the thirty-nine regulated commercial banks as of December 31, 2021. The study period was eight (8) years (2014 to 2021). Respondents were chosen through purposive sampling. Primary data was gathered using structured questionnaires, while secondary data was derived from audited financial reports of commercial banks and the annual banking supervision report from the Central Bank of Kenya. Subsequently, the collected data underwent analysis employing descriptive statistics and regression analysis. The research results disclosed that transaction monitoring positively and significantly influenced commercial banks profitability. Consequently, bank managers should incorporate transaction monitoring into their operations to augment the overall efficacy to detect and report potentially suspicious activities, and to strengthen operational controls.
References
Adeusi, S. O., Kolapo, F. T., & Aluko, A. O. (2014). Determinants of commercial banks’ profitability panel evidence from Nigeria. International Journal of Economics, Commerce and Management, 2(12), 1-18.
Alkhazaleh, A. M. & Almsafir, M. (2014). Bank Specific Determinants of Profitability in Jordan. Journal of Advanced Social Research, 4(10), 01-20.
Athanasoglou, P. P., Brissimis, S. N., & Delis, M. D. (2008). Bank-specific, industry-specific, and macroeconomic determinants of bank profitability. Journal of International Financial Markets, Institutions and Money, 18(2), 121-136.
Barry, E., (2002). An Eve on Russia. Monthly Review, Ernst & Young. Moscow.
Basel Committee on Banking Supervision (2017). Guidelines: sound management of risks related to money laundering and financing of terrorism.
Central Bank of Kenya (2017). Banking sector annual report, Retrieved from Government Press website:https://www.centralbank.go.ke/uploads/banking_sector_annual_reports/831171133_2016%20Annual%20Report.pdf
Commey, B. O., (2019). Anti-Money Laundering Compliance and Performance of Commercial Banks in Ghana. (Unpublished Thesis, University of Ghana)
Geiger, H., & Wuensch, O. (2007). The fight against money laundering: An economic analysis of a cost-benefit paradoxon. Journal of Money Laundering Control, 10(1), 91–105.
Hancher, L., & Moran, L. (1989), Organizing regulatory space. Capitalism, Culture, and Economic Regulation, Oxford University Press, Oxford, pp. 271-274.
Hendriyetty, N. and Grewal, B.S. (2017), “Macroeconomics of money laundering: effects and measurements”, Journal of Financial Crime, Vol. 24 No. 1, pp. 65-81.
Idowu, A., & Obasan, K. A. (2012). Anti-money laundering policy and its effects on bank performance in Nigeria. Business Intelligence Journal, 6(3), 367-373.
Kalungu, S. V. (2012). Impact of Corporate Governance Practice on Financial Performance of the Banking Industry in Kenya. (Unpublished MBA Project, University of Nairobi).
Kamau, A. W. (2009). Efficiency in the banking sector: An empirical investigation of commercial banks in Kenya. (Doctor of Philosophy thesis, University of Nairobi).
Khrawish, H. A. (2014). The impact of anti-money laundering on investment funding: Evidence from Jordanian financial institutions. International Journal of Economics and Finance, 6(3), 227-238.
KPMG (2014), Global Anti-Money Laundering survey 2014.
Levine, R. (1997). Financial development and economic growth: views and agenda. Journal of Economic Literature, 35(2), 688-726.
Mohamed, A. M. (2017). Effect of Anti-Money Laundering Risk Management on Financial Performance of Commercial Banks in Kenya (Unpublished MBA Project, University of Nairobi).
Mugarura, N. (2011), “The global anti-money laundering court as a judicial and institutional imperative”, Journal of Money Laundering Control, Vol. 14 No. 1, pp. 60-78.
Nakate Nabuuma Mai, S. (2018). Critical analysis of the impact of the anti-money laundering act on commercial banks in Uganda (Doctoral dissertation, Kampala International University).
Njung’e, P. W. (2019). Role of Internal Audit Function on Financial Performance of the Listed Commercial Banks in Kenya in the Period 2013-2017. (Unpublished Master of Business Administration, United States International University-Africa)
Oloo, O. (2008). The Banking Survey Kenya. Nairobi: Think Business.
Ongore, V. O., & Kusa, G. B. (2013). Determinants of financial performance of commercial banks in Kenya. International journal of economics and financial issues, 3(1), 237-252.
Raweh, B. A., Erbao, C., & Shihadeh, F. (2017). Review the literature and theories on anti-money laundering. Asian Development Policy Review, 5(3), 140-147.
Rocha, M. (2011), Basic Concepts Regarding Financial Crime and Compliance: AML/CFT System – Strategy and Actors, Dissertation Workshop, Session 3, Universidade Católica Portuguesa.
Sainah, R. C. (2015). The effect of anti-money laundering risk assessment on the financial performance of commercial banks in Kenya. (Unpublished MBA Project, University of Nairobi).
Saona Hoffmann, P. R. (2011). Determinants of the Profitability of the US Banking Industry. International Journal of Business and Social Science, 2(22), 255 – 269.
Schott, P.A. (2006). Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism, 2nd Edition and Supplement on Special Recommendation IX, The International Bank for Reconstruction and Development/The World Bank/ The International Monetary Fund
Smellie, A. (2004). Prosecutorial challenges in freezing and forfeiting proceeds of transnational crime and the use of international asset sharing to promote international cooperation. Journal of Money Laundering Control. Vol. 8 No. 2, p. 104.
Tadesse, S. (2006). The economic value of regulated disclosure: Evidence from the banking sector. Journal of Accounting and Public Policy, 25(1), 32-70.
Tariq, W., Usman, M., Mir, H. Z., Aman, I., & Ali, I. (2014). Determinants of commercial banks profitability: Empirical evidence from Pakistan. International Journal of Accounting and Financial Reporting, 4(2), 1-22.
Wario, A. H. (2013). An assessment of adherence and effectiveness in the anti-money laundering regulations among banking institutions in Tanzania. (Unpublished Master of Business Administration in Finance, Open University of Tanzania).
Watts, R. L., & Zimmerman. J. L. (1986). Positive Accounting Theory. Prentice Hall, Inc., Englewood Cliffs.
World Bank (2006). Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism, 2nd ed. World Bank: Washington.
Yeandle, M., Mainelli, M., Berendt, A., & Healy, B. (2005). Anti-Money Laundering Requirements: Costs, Benefits & Perceptions. Anti-Money Laundering Requirements-Z/Yen Group.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Obed Kipkirui Terer, Lucy Wamugo Mwangi, Job Omagwa
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
