Effects of Revenue Diversification on Financial Performance of Commercial Banks in Kenya

Abstract

The banking segment is one of the most vital area as far as country’s economic growth and development are concerned. However, despite the merit that surrounds the commercial banks in Kenya, their growth and performance has been at risk as evidenced by more than 46% of the banks closing at least 2 to 3 branches while retrenching massively. Between the year 2015 and 2016, Kenyan commercial banks retrenched the workforce at the clerical and secretarial positions by 12.05% and the supervisory level at 9.01%. The report further showed that the banks had closed 62 ATM branches between the year 2015 and 2016 which is a 2.28% drop. Notably, in a period of 2 years, four banks have been facing tremendous times with Charterhouse Bank subjected to management by state, Fidelity, Giro Commercial Banks in acquisition and Chase Bank and Imperial Bank in receivership all this as a result of continued underperformance. The objective of the study was to determine the effect of revenues diversification on financial performance of commercial banks in Kenya. The study population was all the 43 commercial banks in Kenya. The study used secondary data from audited financial statements of all the 43 commercial banks in Kenya. The researcher used both descriptive and inferential statistics in the study. The results indicated that revenue diversification and asset quality had a negative and significant effect on financial performance in commercial banks. The results indicated that liquidity and capital adequacy had a significant and positive impact on performance of banks. However, the results depicted that management efficiency had a positive and insignificant effect on financial performance in commercial banks. The study concluded that revenue diversification and asset quality had a negative and significant impact on financial performance in commercial banks. In addition, the study concluded that liquidity and capital adequacy had a significant and positive impact on performance of banks. The study further concluded that management efficiency had an insignificant impact on financial performance in commercial banks. The study recommends that central bank of Kenya should put in mind grouping banks considering their diversifications in market share, innovations in a bid to link the ranking with profitability.