The Adoption of Bancassurance as a Competitive Strategy to Improve Performance of Commercial Banks: A Case Study of Selected Commercial Banks in Nakuru County, Kenya
Karanja, Jane Nduta
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The financial performance of the commercial banks in Kenya is facing intense competition from the interbank and the non-bank financial services providers including Microfinance Institutions (MFIs), Saccos, mobile payment service providers such as Mpesa and unregulated financial services providers such as shylocks and merry go round schemes. These sources of competition has led to the shrinking of revenue from traditional sources of revenues for commercial banks such as loans both commercial and personal, custodial services, credit cards, maintenance fees, amongst others. The commercial banks must therefore look for competitive strategies to increase their margins from the traditional sources of revenues either from decreasing the costs of servicing these sources or increasing the scope of these services. The commercial banks must also invent and embrace new sources of revenue generation. The bancassurance platform offers a competitive strategy that help to increase financial performance for commercial banks through economies of scope, economies of scale, cheap acquisition of lending funds, and commission from insurance sales. The overall aim of this study is to analysis how bancassurance can be adopted as a competitive strategy in order to improve financial performance of commercial banks with a case study of selected commercial banks in Nakuru County, Kenya. To achieve this, three main specific objectives were applied. The theoretical review of the study consisted of financial intermediary theory, theory of economies of scale and the modern portfolio theory. Population of 800 bank employees was targeted with 89 respondents as the size of the sample. Collected data were analyzed statistically using SPSS version 21 software. For frequency analysis, mean, standard deviation, linear correlation and regression tools were used for data analysis. Three financial performance indicators were used in the analysis including non-funded income, deposit mobilization and market share. Tables were used for data presentations. Bancassurance is generally received well in the market though with some challenges. All independent variable, including non-funded income, deposit mobilization and market share are statistically significant predictors on their own, for financial performance of banks. In terms of the order of influence, deposit mobilization was highly ranked, followed by non-funded income while market share was lowly ranked. Therefore, deposit mobilization influenced financial performance than either non-funded income or market share. This study recommends the use of bancassurance products by commercial banks as a competitive strategy for better financial performance. This is because financial performance decreases in the absence of these strategies. The study further recommends that deposit mobilization be undertaken as a priority in the adoption of bancassurance products in commercial banks so as to increase financial performance. Banks have wider customer trusted base in comparison to insurance companies. Marketing should therefore be taken aggressively. This can be achieved by making sure insurance products are integrated in bank sale management framework for the sole purpose of selling more. The two sectors should sell and market their products jointly and simultaneously. Researcher recommends further studies in this topic through examining other strategies that can improve the financial performance for commercial banks.