Effect of Buffer Capital Provision on the Relationship between Loan Portfolio Quality and Financial Performance of Commercial Banks in Kenya

Bedan Musyoka Mulei, Dr. Robert Odunga and Dr. Joel Tuwey
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Bedan Musyoka Mulei: School of Business and Economics, Moi University, Kenya
Dr. Robert Odunga: School of Business and Economics, Moi University, Kenya
Dr. Joel Tuwey: School of Business and Economics, Moi University, Kenya

International Journal of Research and Innovation in Social Science, 2025, vol. 9, issue 10, 9928-9937

Abstract: This study examined the moderating role of buffer capital provision on the relationship between loan portfolio quality and financial performance of commercial banks in Kenya. Using an explanatory longitudinal design and a census of all 45 commercial banks over the period 2018-2022, the study employs panel-based hierarchical regression to test how delinquency rate, leverage ratio, and portfolio-at-risk influence return on assets (RoA), and how buffer capital moderates those effects. Corrected bivariate and multivariate analyses consistently show that higher delinquency rates, greater leverage and larger portfolio-at-risk are associated with lower RoA (delinquency: β = -0.2346, p = 0.005; leverage: β = -0.1235, p = 0.035; portfolio-at-risk: β = -0.3457, p = 0.001). Buffer capital has a positive direct effect on RoA (β = 0.4568, p

Date: 2025
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