According to the central bank supervision report, the Kenyan banking sector as at 31st
December 2010 comprised of the Central bank of Kenya as the supervising authority
and 43 commercial banks. The intermediation function can further be exemplified by
looking at the total deposits held by commercial banks which totaled Kes.1.236
trillion and gross loans issued totaled Kes.914 Billion. The central bank exercises the
supervisory authority through the Bank Supervision Department (BSD) which is
mandated under the section 4(2) of the Central Bank of Kenya Act; to foster liquidity,
solvency, and a proper functioning of a stable market based financial system (Central
Bank of Kenya, 2010).
This important role carried out banks therefore calls for the need to evaluate the
performance of banks in terms of the efficiency with which they carry out the
inter-mediation function. The concept of bank performance and research into its
measurement is well documented and advanced in finance. Behn (2003) writes that
performance measures can be used for multiple purposes and gives eight specific
purposes of measuring performance as; (1) evaluate; (2) control; (3) budget; (4)
motivate; (5) promote; (6) celebrate; (7) learn; and (8) improve. Of this purposes
given, he cites evaluation as the key reason for measuring performance and says that
even if the performance measures are not collected for the explicit purpose of
evaluation, this possibility is always implicit.
According to the central bank supervision report, the Kenyan banking sector as at 31st December 2010 comprised of the Central bank of Kenya as the supervising authority and 43 commercial banks. The intermediation function can further be exemplified by looking at the total deposits held by commercial banks which totaled Kes.1.236 trillion and gross loans issued totaled Kes.914 Billion. The central bank exercises the supervisory authority through the Bank Supervision Department (BSD) which is mandated under the section 4(2) of the Central Bank of Kenya Act; to foster liquidity, solvency, and a proper functioning of a stable market based financial system (Central Bank of Kenya, 2010). This important role carried out banks therefore calls for the need to evaluate the performance of banks in terms of the efficiency with which they carry out the inter-mediation function. The concept of bank performance and research into its measurement is well documented and advanced in finance. Behn (2003) writes that performance measures can be used for multiple purposes and gives eight specific purposes of measuring performance as; (1) evaluate; (2) control; (3) budget; (4) motivate; (5) promote; (6) celebrate; (7) learn; and (8) improve. Of this purposes given, he cites evaluation as the key reason for measuring performance and says that even if the performance measures are not collected for the explicit purpose of evaluation, this possibility is always implicit.
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