Real Time Gross Settlement and Financial Performance of Commercial Banks in Kenya
Muhoro, Duncan Iregi
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The banking industry has been undergoing a significant process of transformation. Novelty in information technology has been the force behind this transformation. Real Time Gross Settlement (RTGS) is an automated means of transferring funds from one bank to another on real time. The challenge is that even with innovation on real time gross settlement commonly known as pesalink, it’s still not clear whether it has significant effect on financial performance of commercial banks in Kenya. It’s from this contextual that the study sought to investigate the effects of RTGS on the financial performance of banks in Kenya. The research specifically sought to investigate if there is a correlation between the dependent variable of financial performance as measured by return on assets (ROA), with the independent variable real time gross settlement which was measured by percentage of adoption of service and percentage of transactions. The following hypothesis was developed, real time gross settlement lack significant result on monetary performance of commercial bank in Kenya. A census research was done on all Banks in Kenya as regulated by CBK. The study used secondary data from 43 profitable banks operational in Kenya. The research used both inferential and descriptive statistics. Diagnostic tests were carried out to test for Normality and Heteroscedasticity tests. Data was coded and sorted using SPSS to produce descriptive statistics which was presented in form of tables. The study found out that, RTGS affects ROA at 0.022 significance, 1% increase in RTGS volumes increase ROA by 0.7985%. The more the volume of transactions, the more the revenue or income from the RTGS platform. Based on the conclusion, the research recommends that Commercial banks use RTGS to achieve on profitability and at the same time revamp mobile and internet banking platforms for customer service and loyalty.