The Effect of Branchless Banking Strategy on the Financial Performance of Commercial Banks in Kenya
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Date
2017-10-17
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Abstract
The Banking sector acts as the life blood of modern trade and economic development. Commercial banks influence,
facilitate and integrate the economic activities like resources mobilization, poverty elimination, production, and
distribution of public finance. The financial performance of commercial banks has great implications in the financial
sector and in the country at large, and will still remain an important subject of concern by all the stakeholders in the
banking industry. In the last two decades, a lot of banking innovation has taken place in order to improve commercial
banks financial performance. Branchless banking which involves the use of agency banking and electronic banking
channels in the distribution of banking products and services is one such innovation. This study purpose was to
evaluate the effect of branchless banking on the financial performance of commercial banks in Kenya. The specific
objectives of the study were to analyze the individual effects of agency banking and electronic banking channels on
the financial performance of commercial banks in Kenya and the combined effect of both agency and electronic
banking on the financial performance of commercial banks in Kenya. The study adopted an exploratory research
design. A survey of all the 42 licensed commercial banks in Kenya was done. Both primary and secondary data on
branchless banking and financial performance of banks was obtained from the individual commercial banks, Central
Bank of Kenya banking annual supervision reports respectively. Return on Assets (ROA) was used as the main
indicator of commercial banks financial performance. The amount of investment in agency and electronic banking
was used as indicator for agency and electronic banking. Data analysis was done using SPSS and STATA statistical
softwares. Descriptive statistics, diagnostic tests and tests of hypothesis were done. Data was presented using tables
and charts. Study findings indicated that when used in isolation; both agency and electronic banking had a significant
negative effect on the financial performance of commercial banks at 5 percent significance level. However, when
agency and electronic banking channels were used together as a multichannel strategy, they had a significant positive
effect on bank’s financial performance at 5 percent significance level. The study recommends that for positive
returns, commercial banks should invest in both agency and electronic banking as a multichannel strategy since these
channels are complimentary to each other.
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Citation
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