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EFFECTS OF AGENCY BANKING ON FINANCIAL PERFOMANCE OF COMMERCIAL BANKS IN KENYA

 

Karanja Faith Njeri

The Catholic University of Eastern Africa,

P.O. Box 62157-00200 City Square. Nairobi-Kenya

Corresponding Author email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

 

Prof. Aloys B. Ayako

The Catholic University of Eastern Africa,

P.O. Box 62157-00200 City Square. Nairobi-Kenya

 

Mr. Martin Kweyu

The Catholic University of Eastern Africa,

P.O. Box 62157-00200 City Square. Nairobi-Kenya

CITATION: Njeri, K., F., & Ayako, A., B., Kwenyu, M. (2018) Effects of Agency Banking On Financial Performance of Commercial Banks in Kenya. International Journal of Economics and Finance. Vol. 7 (4) pp 1 – 20.

ABSTRACT

 

The main objective this study was to determine the effect of agency banking on the performance of commercial banks in Kenya. The specific objectives of the study were to examine the effect of number of agents recruited, growth in market (clients) resulting from adoption of agency banking and firm size on the financial performance of commercial banks in Kenya. The independent variables of the study were growth in market share, number of clients and firm size and the dependent variable was financial performance of the banks. Relevant theoretical and empirical literature was reviewed and gaps identified to inform the study. The population of the study was the eighteen banks in Kenya that had been allowed to operate agency banking as at December 2016, as per the latest data available by the time the study was being conducted. A purposeful sample of seven banks that were actively involved in agency banking was picked. Secondary data for use or for construction of the variables under study was collected from the financial statements of the banks for the year 2016. Data was diagnosed for and treated, where necessary, of the problems of regression analysis. Using a causal study design packed by descriptive and inferential statistics a Least Squares regression was done on the data using E-views software. Adopting a 5% non-directional test of hypothesis, the study found a significant negative effect of market share on performance, a positive significant relationship between number of agents and performance, and a positive significant relationship between firm size and performance of commercial banks in Kenya. Concerning the first objective of the study which was to determine the effect of growth in client base on performance of commercial banks in Kenya, the study concluded that, at 5% significance level, growth in client base has statistically negative significant effect on bank performance in Kenya. On the second objective which was to establish the effect of number of agents on performance of commercial banks in Kenya, the study concluded that, at 5% significance level number of agents has statistically positive significant effect on commercial bank performance in Kenya. For the third objective which was to determine the effect of firm size on performance of commercial banks in Kenya, the study concluded that, at 5% significance level, size has a positive and statistically significant effect on performance of commercial banks in Kenya. From the findings, the study recommends that commercial banks shouldn’t just look at the increase in agency client base but also the quality of those clients. Since the number of agents had a positive relationship with performance, the study recommends that banks should increase the number of agencies in order to increase performance. Size of commercial banks was found to have a positive significant effect on performance of commercial banks in Kenya and therefore the study recommends that banks with a large asset base are better off with more agencies than banks with smaller asset base.

Key words: Growth in clients, Number of agents, Firm size, Firm performance

 

 

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