Effect of privatisation on financial performance Of commercial banks listed at the Nairobi stock Exchange

Privatization is the taking of services that are supplied by the government and turning
them over to the private sector for provision or production. In Kenya, privatization has
been implemented in various sectors such as the industrial, commercial, finance and
agriculture. Hongo (2006) while looking at the effect of privatization rate on SOE
financial performance where she found that the rate has no effect also observed that no
study has been undertaken in Kenya on the effect of privatization on each of the four
sectors represented by the already privatized State owned Enterprises (SOEs). This study
analysed the effects of privatization on financial performance of state owned enterprises
in the banking sector that were privatized through the NSE.
The study employed descriptive event census design on a population of privatized
commercial banks quoted at NSE. The study used secondary data sources in collecting
information; internet, periodic report and brochures on key variables like sales, profit
before tax, total assets, current assets, total liabilities and current liabilities for a period of
two years before and two years after privatization of each bank. The data was analysed
for variation (ANOVA) using the student t-test, to test the hypothesis on whether
there is any significance difference in financial performance after privatization.
The study found that privatization has a positive impact on the banks' financial
performance as it increased the banks' profitability ratios meaning that the banks get a lot
of profits for every shilling invested in assets and further that it after privatization, the
banks faces more pressure to perform as they are not cushioned by the government hence
have to perform to survive. The study recommends that banks should avoid borrowing
loans to facilitate the process of privatization so as to make them increase their financial
performance.