Spread in Branch Network and Financial Performance of Commercial Banks in Kenya

Abstract

Spread in branch network is instrumental in improving access to banking services and products and addressing unmet needs of the customers. The contribution of spread in branch network towards improved performance has been a subject of debate since scholars’ present different views over this issue while there is paucity of research on this area. The main goal for this study was establishing the link between spread in branch network and commercial banks financial performance in Kenya. To achieve this goal, the researcher adopted a correlation design to test the relationship between the variables. The study population involved all the 39 commercial banks in Kenya, the study utilized published sources of data that were derived from CBK annual reports in a duration spanning for years (2012-2016). Data was analyzed with the help of descriptive statistics and inferential statistics. Hierarchical regression was used to model the relationship between spread in branch networks and return on assets. The model was built by adding the interaction of four control variables (customer deposits, bank size, operational efficiency and capital adequacy). This study established that spread in bank branch networks significantly (p< 0.05) predicts return on assets. The study established of that an interaction between spread and operational efficiency significantly (p<0 .05) predicts return on assets. In addition, the interaction of spread and operational efficiency significantly explain the variance in return on assets over and above the additive effects of spread on return assets. Hence operational efficiency moderates the relationship between spread of branch networks and return on assets. However, the study found out that the interaction between spread and deposits, bank size and capital adequacy did to significantly explain the variance in return on assets. Hence deposits, bank size and capital adequacy do not moderates the relationship between spread of branch networks and return on assets. This study recommends that local commercial banks should continuously invest in advanced banking technologies to boost efficiency in their operations and minimize operational costs.