Implications of Downsizing on Financial Performance of Commercial Banks in Nairobi County, Kenya
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Date
2021
Authors
Mwangi, Bernice Muthoni
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Capping of interest rates by the Central Bank of Kenya in September 2016, led to massive downsizing by commercial banks in Kenya in order to reduce costs, survive and generate profits. However, by the end of financial year 2017 when banks that downsized were releasing their financial reports some banks had made profit like Kenya Commercial Bank, Cooperative bank, while others including Family bank, Barclays among others had made loses. Therefore, it is not clear whether downsizing has a positive or a negative impact on banks’ profitability. The goal of this study was to see how downsizing tactics affect commercial banks' financial performance. The survey looked at the impact of four downsizing strategies on commercial bank financial performance: personnel reduction strategy, organization redesign strategy, systemic strategy, and asset reduction strategy. Agency theory, risk returns trade-off theory, transaction cost economic theory, risk management control theory, and goal setting theory are among the theories that guide this research. In this study, a descriptive research design was used. The research targeted 12 commercial banks in Kenya. The research targeted three managers from each bank in the following categories: senior, middle and supervisory level. Therefore, the target respondents were 36 managers. A census approach was adopted since the population size is not large. Data was gathered using structured questionnaires issued to bank managers. The data collected was quantitative in nature and was sorted to ensure completeness. Descriptive statistics were developed to clarify the characteristics of the research concepts. Inferential statistics like Pearson correlation and regression analysis were employed to show the link between the study variables. Organization redesign strategy had a positive and significant effect on commercial bank financial performance in Nairobi County, Kenya, systemic strategy had a positive and significant effect on commercial bank financial performance in Nairobi County, Kenya, and asset reduction strategy had a positive and significant effect on commercial bank financial performance in Nairobi County, Kenya. On the other hand, the personnel reduction strategy had a favorable but minor impact on financial performance. With the exception of personnel reduction techniques, downsizing procedures have a positive and significant impact on the financial performance of commercial banks in Nairobi County, Kenya. The study recommends that commercial banks should not fear laying off some employees. This will help them to cut down some expenses thus improving their performance. Banks should also embrace technology so as to reduce their operational costs at the expense of human capital. The study recommended that banks should also diversify so as to increase their level of income. Bank should also invest more on innovation and agency and digital banking as key drivers of diversification for banks and distribution channels of banking products. This will help to boost their performance.
Description
A Masters Thesis Submitted in the Graduate School in Partial Fulfillment of the Requirements for the Award of Masters of Business Administration (Finance Option) Kenyatta University , July, 2021
Keywords
Implications, Downsizing, Financial Performance, Commercial Banks, Nairobi County, Kenya