The Effect of Bancassurance on Financial Performance of Commercial Banks in Kenya
Abstract
Interest income is the major source of incomes for the bank. This income arises due to the differentials in the borrowing and lending rate of the bank. However the prevailing market conditions have made income generation through interest income more stringent due to the substantial rise in the cost of borrowing funds and increased competitiveness in lending to provide useful interest income. Among the most notable transformations prevailing in the financial services’ industry has been the emergence and growth of bancassurance in a bid to remain competitive and profitable. This study sought to determine the effect of bancassurance on financial performance of commercial banks in Kenya. The study’s population was all the 42 commercial banks operating in Kenya. Data was obtained from 41 out of the 42 banks giving a response rate of 97.62%. The independent variable for the study was bancassurance as measured by ratio of annual value of premiums sold through bancassurance to annual total revenue earned. The control variables were liquidity as measured by the current ratio, firm size as measured by natural logarithm of total assets and capital adequacy as measured by the ratio of gross loans and advances to total assets. Financial performance was the dependent variable which the study sought to explain and it was measured by return on assets. Secondary data was collected for a period of 5 years (January 2013 to December 2017) on an annual basis. The study employed a descriptive cross-sectional research design and a multiple linear regression model was used to analyze the association between the variables. Data analysis was undertaken using the Statistical package for social sciences version 21. The results of the study produced R-square value of 0.337 which means that about 33.7 percent of the variation in the Kenyan commercial banks’ financial performance can be explained by the four selected independent variables while 66.3 percent in the variation of financial performance of commercial banks was associated with other factors not covered in this research. The study also found that the independent variables had a strong correlation with financial performance (R=0.580). ANOVA results show that the F statistic was significant at 5% level with a p=0.000. Therefore the model was fit to explain the relationship between the selected variables. The results further revealed that bancassurance, capital adequacy and bank size produced positive and statistically significant values for this study. The study found that liquidity is a statistically insignificant determinant of financial performance of commercial banks. This study recommends that measures should be put in place to enhance bancassurance among commercial banks as this will improve their financial performance.
Publisher
university of nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
The following license files are associated with this item: