Integration Strategies and Performance of Commercial Banks in Nairobi City County, Kenya
Gachango, Samuel Nelson
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In the past ten years, commercial banks have been operating in a dynamic and very fluid environment. There have been new technological innovations and legal changes within the banking sector intensifying competition. These changes have necessitated the need for banks to craft strategies to safeguard their survival and improve their accomplishments. This research study sought to investigate the effect of integration strategies on performance of commercial banks in Nairobi County, Kenya. This study was motivated by the following specific objectives; to determine the effect of forward, backward, horizontal and conglomerate integration strategies on commercial bank’s performance in Nairobi City County, Kenya. The study was anchored on the transaction cost theory, the theory of constraints, the porter’s theory of competitive advantage, and value chain analysis theory as they were relevant to this study. The research design used was descriptive research. The study’s target population was 44 banks that are accredited to provide services in Nairobi. The study used structured questionnaires to fetch data from respondents. The respondents were finance heads, marketing heads, operation heads, and human resources heads of the selected banks. The researcher used the drop and pick approach to administer the questionnaires. A sample size of 30 commercial banks was used. The unit of observation was 120 heads of departments which included 30 heads of finance, 30 heads of operations, 30 heads of marketing and 30 heads of human resources. Validity of the data collection instruments was guided by the supervisor to ensure content and face validity. The data that was collected was coded and analyzed using SPSS and Microsoft Excel. Pie-Charts and Tables were used to present the analyzed data. ANOVA and multiple regression data analysis models were used. The study established that forward, backward, horizontal and conglomerate integration strategies had an influence on commercial bank’s performance. Regression findings established that conglomerate integration strategy had a more significant influence on performance of commercial banks in Nairobi City County as indicated by a mean of 4.07. It concludes that forward integration strategy can improve a bank’s productivity, revenues, efficiency and reduce the labour turnover. Bank’s that mobilize deposits from sources such as insurance companies, pension schemes, SACCOs and employee groups have sufficient liquidity to expand therefore improvement in their performance. Mergers, joint ventures and strategic alliances within the banking sector improve on the core capital and revenues of the commercial banks. The horizontal integration strategy also improves the banks efficiency and customer retention rates which impact positively the overall performance of commercial banks. The findings also show that by a commercial bank being in a group or holding a subsidiary which is not in the banking sector, the bank’s revenues and efficiency increases. The research study recommends that banks should adopt an expansion strategy through mobile banking agencies. Banks should also target pension schemes, insurance companies and SACCOs because they provide needed customer base and deposits. Banks should form strategic alliances and joint ventures with other banks to leverage the strength of combined synergies. Additionally, banks should focus on offering non-banking related services such as insurance and wealth management services. These improve the overall performance of the banks as they enhance productivity, profitability and efficiencies.