ANNE WANJIKU MUTINDA

There is a great practice of corporate firm performance diversification in Kenya by most of the investors and companies. The study proposed to determine the effect of income diversification on financial performance of banks in Kenya. The population consisted of 42 banks but data accessible was made up of 30 banks. The study covered the period 2014 to 2018. Audited statements and CBK reports provided data that was utilized in the study. The research design used was descriptive and analysis of data was carried out using a model known as regression. HHI index was used to measure income diversification and the moderating variables used included; size, capital adequacy and liquidity. Results findings were that income diversification was positively related to commercial banks performance. However, the strength of the relationship was not significant. Liquidity, bank size and capital adequacy ratios were all found to have positive and significant effect on financial performance that was determined using ROA. The adjusted R2 for the regression was found to be 24.9 %. This implied that, the independent variable explained only 24.9% of the changes in the dependent variable. The model was also found to be fit since the p value of 0.00 was less than 0.05. The study therefore recommends more diversification into the non-interest business given that the interest source seems to be getting saturated due to the limits being put forth by the Kenyan government in addition to competition arising from the rising importance of non- bank sources of finance for households.