Financial Performance of the Banking Sector in Kenya: The Role of Internal Audit
Abstract
The aim of the study was to investigate the role of internal audit in the performance of the banking sector in Kenya. The target population of the study was 44 licensed commercial banks in Kenya listed in the Central Bank of Kenya website. Descriptive research design was adopted in the study. The study employed both primary and secondary data to achieve its objectives. Questionnaires were employed to collect primary data while secondary data was retrieved from financial reports of the Central Bank of Kenya for five years from 2012-2016. Data analysis employed both descriptive and inferential statistics. The study findings showed that there was a positive relationship between internal audit function and financial performance in the commercial banks in Kenya. This implies that an improvement in audit function leads to an improvement in financial performance of the commercial banks in Kenya. The results further showed that non-performing loans and previous year net income moderates the relationship between the internal audit function and financial performance of the commercial banks in Kenya. This implies that non-performing loans and previous year net income has an impact on the relationship between internal audit function and financial performance of the commercial banks in Kenya. Non-performing loans reduced financial performance while last year net income increased the financial performance. The study recommended further research to include internal audit committees and other internal audit staff to get their opinions regarding internal audit function within the commercial banks in Kenya, other financial sectors and also include other measures of financial performance including return on Assets, Net Interest Margin among others. This study is of help to academicians, the management of commercial banks in Kenya, the government, practitioners and the general financial sector for policy formulation in the promotion and development of financial performance of organisations in the country.
Keywords: Internal audit, banking sector, financial performance, chief internal audit executives, non-performing loans, net income.
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