Strategic Response Strategies to Competition and Perfromance of Commercial Banks in Nyeri County, Kenya
Muriira, Moses Muriithi
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The competitive intensity of commercial banks in Kenya threatens the health of the banking sector as exhibited by the struggle and ultimate collapse of several small banks. The main objective of this study therefore, was to establish the effect of strategic response strategies to competition on performance among commercial banks in Nyeri County, Kenya. The specific objectives of the study were to assess the effect of financial innovation on performance among commercial banks; to establish the effect of rebranding strategy on performance among commercial banks; to determine the effect of restructuring strategy on performance among commercial banks and to investigate the effect of competition-based pricing on performance among commercial banks in Nyeri County, Kenya. The study was guided by the Porter‟s five force model. The current study used a descriptive cross sectional research design. Commercial banks in Nyeri County were targeted. Operations managers and departmental heads were the respondents in the study. The study carried out a census of the 79 operations managers and departmental heads of Commercial banks in Nyeri County A self-administered semi-structured questionnaire was used to collect data on response strategies to competition. Data on financial performance of participating banks was sourced from the banks‟ financial statements. Descriptive statistics such as frequencies, percentages, mean and standard deviation were used to organize findings. Regression analysis was conducted to determine the statistical significance of the attempted prediction between strategic response strategies to competition and performance among commercial banks. SPSS software was used in analysis. Tables and figures were used to present findings. The study found that descriptive statistics (M=1.686, SD =0.7608) showed that financial innovations were used to a great extent in the participating banks. Descriptive statistics (M=4.0, SD =0.691) indicated that rebranding was exercised to a very small extent in the participating banks. Descriptive statistics (M=2.46, SD=0.70) showed that restructuring was exercised to a large extent in the participating banks. Descriptive statistics (M=3.19, SD=0.59) indicated that competition based pricing strategy was used to a small extent in the participating banks. Simple regression analysis showed financial innovation (p=0.00), restructuring strategy (p=0.007) and competition-based pricing (p=0.000) to be statistically significant. Multiple regression analysis showed that 61.1% of financial performance of commercial banks can be explained by the response strategies. Financial innovations (β=0.456) had the highest effect of the four strategies considered in this study. The study therefore concluded that financial innovation, restructuring and pricing strategies were important predictors for financial performance of commercial banks. The study recommended that banks should invest in research into financial innovations. In particular, banks should seek to create more financial intermediaries to supplement the banks existing product line.