Correlational Study Between Capital Markets and Financial Performance of Commercial Banks in Rwanda

The main objectives of this study were to examine the link between Capital Markets and the Financial Performance of Commercial Bank. The study was guided by three objectives such as: To examine the effect of equity market on the financial performance, to assess the effect of bond market on the financial performance, to establish the effect of securitized products on the financial performance of Bank of Kigali. The study adopted quantitative approach to collect data from 32 respondents’ employees of BK by using purposive sampling technique. Data collected was analyzed using SPSS, and the instruments of data collection were questionnaire, interview, and documentary techniques. The results show that perceptions of respondents about effect of bond market on the financial performance of Bank of Kigali Rwanda show that more than 84.4% of respondents confirmed that Size of Equity market affects market capitalization for generating net profit margin for BK; and 84.4% that size dimension of equity market reflects turnover ratio of BK. The R-Square was.759 while ANOVA shows the Sum of Squares of 7.875. The results on the effect of bond market on the financial performance of Bank of Kigali confirmed by 84.4% of respondents who said that Bond market of BK helps to increase its interest income; and 78.1% of respondents confirmed that accessibility of Bond market facilitates an increase of capital gain to BK in Rwanda. R-Square was.610 and ANOVA table shows that Sum of Squares of 7.875. The effect of securitized products on the financial performance of Bank of Kigali confirmed by more than 84.4% who said that commercial mortgages offered by BK increases the internal return of this commercial bank; 78.1% of respondents participated in the study confirmed credit card receivables facilities BK to increase income from borrowers of this bank; and 68.8% agreed that the Auto loans and student loans of BK increase the net profit margin. R-Square was 743 and its adjusted R-Square was.638. ANOVA table shows that Sum of Squares was 7.875 combining the regression of 5.850; and residual of 2.025. Mean Square was.650 for regression while.092 was on the side of residual in the Mean Square. As conclusion, based to the findings, there is significant positive effect of Capital Market son the financial performance of Bank of Kigali in Rwanda.


Introduction
This study is based on locally owned public commercial public bank in Bank. The researcher selected this sample due to the fact that there are only locally owned private commercial banks in Rwanda. In addition to that it is the largest private owned commercial banks in Rwanda. The study is carried in the financial sector especially in Bank of Kigali Rwanda limited [9]. The financial sector plays an essential role in providing and channeling financing for investment. Beyond providing short-term finance for businesses' day-to-day operations and other temporary cash requirements, financial institutions, Capital Markets and institutional investors are also sources of long-term finance that is finance which is available for an extended period of time [11]. The importance of long-term finance lies in its pivotal role in satisfying long-term physical investment needs across all sectors in the economy and specifically in key drivers of growth, competitiveness and employment such as the infrastructure, real estate, R&D and new ventures [2].
According to WB, Banking institutions play an important role in the economic life of any country with the result that continued strength, stability and soundness of the entire banking system is a matter of public concern. Banking institutions act as the principal depository for public funds [14]. The safety and ready availability of these funds for transactions and other purposes is essential to the stability and efficiency of the financial system [6]. Banks also employ these funds to make loans and investments in addition to being the main vehicle through which monetary policy is implemented. This study was guided by three theories such as the Modigliani Miller Theorem; Pecking Order theory; and agency cost theory.

Statement of the Problem
Various private locally owned banks in Rwanda have been taken over by various foreign banks. A case in point, Agaseke bank was taken over by Bank of Africa 2016, Bank Popularize merged with Atlas Mara in 2016. The report by National Bank of Rwanda (NBR) (2016) revealed that most local banks lack enough liquidity to pay financial obligations to compete with the foreign banks. The report further revealed that most banks are facing a liquidity problem [4].
Bank of Kigali (BK) is committed to transforming the lives of Rwandans not only through providing the most innovative financial solutions on the market but also by giving back to the community, where net profit ratio in 2012 which is 33.89%%; in 2013 net profit increased on 33.13%%; in 2014, NP was 36.17%; in 2015, NP was 36.46%.2016, NPM was 34.46%; and in 2017, NPM was 31.29% [7].
However, it is within this context that the researcher wants to assess how Capital Markets contributes to the financial performance of commercial banks in Rwanda. Karemera (2013) studied the relationship between regulation of Capital Markets and financial performance of Rwanda commercial banks. The objective of this study was to establish the relationship between Regulation and Financial Performance of commercial banks in Rwanda. The study had three specific objectives; establishing how capital requirement ratio, liquidity ratio and management efficiency ratio affect financial performance of commercial banks in Rwanda. The findings of the study in some areas concur with past studies while in others it contradicts past findings by other scholars. The overall finding and conclusion of the study was that all the measures of regulation used in this study are not significant predictors of financial performance of commercial banks in Rwanda. These findings explored regulation prospects but not the effects of Capital Markets operations on commercial banking in Rwanda.

Research Methodology
This study adopted descriptive cross sectional survey design. The target population in this study was the employees of Bank of Kigali with 40 employees were targeted from the head office in different department. The purposive sampling technique was used to select 32 of respondents. The information used in this research was originated from primary and secondary source while data collection techniques were questionnaire and documentary techniques. Data were analyzed using both quantitative and qualitative technique and the results were presented by using the descriptive methods of data analysis.

Data Analysis and Discussion
The questionnaire was distributed to 32 respondents' employees of BK and they have been given one week and two days of responding the questions where the researcher found the participation rate of 100.0% of respondents. This section illustrates summary of main findings in relation with the effect of equity market on the financial performance of Bank of Kigali; the effect of bond market on the financial performance of Bank of Kigali; and the effect of securitized products on the financial performance of Bank of Kigali.  Table 1 describes the effect of equity market on the financial performance of Bank of Kigali. Overall assessment shows that equity market affects the financial performance of Bank of Kigali; this was indicated by a mean of 1.85069 and a standard deviation of 1.0555. This implies that there is an effect of equity market on the financial performance of Bank of Kigali. It was found that model summary table 2 shows the R-Square of.759 with Adjusted R-Square of.660 which shows that there is significant effect of equity market on the financial performance of Bank of Kigali.

Effect of Equity Market on the Financial Performance of Bank of Kigali
The findings on ANOVA table show that Sum of Squares was 7.875 included by regression of 5.976 and residual of 1.899. Mean Square was also.664 for regression while on residual, the Mean Square was.086.   The model summary table shows that the R-Square was.610 and its adjusted R-Square was.450. This result helps us to confirm there is significant effect of bond market on the financial performance of Bank of Kigali. The findings on ANOVA table show that Sum of Squares was 7.875 that included by regression of 4.802 and residual of 3.073. Mean Square was also .534 for regression while on residual, the Mean Square was .140.  Table 7 describes the securitized products influences the financial performance of Bank of Kigali. Overall assessment shows that securitized products influence the financial performance of Bank of Kigali.; this was indicated by a mean of 1.978777, and a standard deviation of 1.106222. This implies that there is significant effect of securitized products on the financial performance of Bank of Kigali.

Linear Regression Analysis
A linear regression line is used as an equation of the form Y = a + bX, where X is the explanatory variable and Y is the dependent variable. The slope of the line is b, and a is the intercept (the value of y when x = 0). The study uses linear regression by analyzing the Capital Markets in terms of "Bond market; Securitized products; and Equity market investment" as independent variable, with financial performance in terms of "profitability; liquidity, and Capital adequacy" as dependent variable. The study used the formula of Y= ẞ 0 +ẞ 1 X 1 +ẞ 2 X 2 + ẞ 3 X 3+ ε.
Y is dependent variable indicator which is "financial performance's is independent variable factors which are "Bonds market; Securitized products; and Equity market investment".

Capital Markets and Profitability of Bank of Kigali
Rwanda This section shows the influences of Capital Markets to the profitability of Bank of Kigali Rwanda as table 8 indicated as follows.  Rwanda as table 9 presented as follows.

Capital Markets and Capital Adequacy of Bank of
Kigali Rwanda This section illustrates the information about the relationship between Capital Markets and Capital adequacy of Bank of Kigali Rwanda. The X 1 represent Bond market, X 2 represent Securitized products, X 3 is Equity market investment and lastly, ε represents standard errors. As explained by the linear regression equation, it is clear that one unit change of X 1 , X 2 , and X 3 lead to change times 0.106, 0.131, and -0.021of dependent variable respectively. In the other case if all independent variable indicators are zero, the dependent variable equals to the constant (1.028). Thus, according to the result indicated in

Financial Performance of Bank of Kigali Rwanda After Joining Capita Markets
The profitability ratio is considered as one measure of financial performance of commercial bank like Bank of Kigali. However, the common profitability ratios used in analyzing of BK financial performance include GPM Ratio, Net Profit Margin Ratio (NPM), Return on Assets (ROA), Return on Equity (ROE). The GPM indicates the percentages of sales available for expenses and profit after the cost of merchandise is deducted from sales.   The current ratio measures the liquidity of the company. It provides the investor with a measure of the company's ability to pay current liabilities with current assets. The calculation of the measure is current ratio equals current assets / current liabilities. The table 12 presents the current ratio of BK where current ratio was 9.21 in 2012; CR was 22.86in 2013; and in 2014, CR was 21.49, and in 2015, CR was 32.50; in 2016, CR was 6136.87 and 2017, CR was 2712.38.

Conclusion
According to the findings, the problem of the study was solved, research objectives were achieved, research questions were answered and hypotheses were verified, the null hypothesis that said "there is no significant relationship between Capital Markets and financial performance of bank of Kigali (BK) " was rejected after data analysis, while alternative hypothesis that said "there is significant relationship between Capital Markets and financial performance of bank of Kigali (BK) " was retained. The findings help us to confirm that there is a there is a significant relation between Capital Markets and financial performance of Bank of Kigali in Rwanda.

Recommendation
The bank of Rwanda management should work much harder to improve its corporate governance, respond positively to economic conditions, and wake up to constructive risk management. This improves the corporate image of the commercial banks thereby raising the prices of the shares. When more people buy the shares, the banks raise more capital hence improved performance [1].
The management of the banks should work on proper advertising of their bond markets by attaching attractive interest rates [8]. This entices the dealers to take more debt in form of loans, thus making the banks more liquid in the long run [3].
The securitized products like loans should be offered to the public after a clear assessment on who legally qualifies for the product [5]. This puts the risk of default very low. When this happens, the bank raises more liquid hence improved performance.