The Effect Of Agency Banking On The Financial Performance Of Commercial Banks In Kenya

Abstract

Banks are developing innovative service delivery methods that ultimately lead to growth in revenue streams or decline in operational costs, and eventually increase in profit. Some of the innovative ways include adaptation of alternative delivery channels like agent banking. This research analysed the outcome of agency banking on the financial results of Kenyan banks. To achieve the purpose of the study, a descriptive research design was used. The target population comprised 17 commercial banks of Kenya that had adopted the agency banking model as at December 2017. Secondary data obtained from the CBK Bank Supervision Annual reports and audited financial statements for the commercial banks were used. Yearly publications of the banks were analysed for a 6-year duration, from 2012 to 2017. The data collected was analysed via a statistical package called EViews. The variables used for the study were number of agents and volume of agent transaction (cash withdrawals and deposits), asset quality, capital adequacy and liquidity, and ROA. The interconnection between the explanatory and regressand variables was calculated by multiple linear regression. The study concluded that a positive relation between number of agents and volume of agent transaction (cash withdrawals and deposits) and ROA. A rise in the number of agents and volume of agent transactions led to a corresponding rise in the ROA of commercial banks. The study also found out a positive interrelation between capital adequacy, liquidity and ROA; whereas a negative interrelation was determined between asset quality and ROA. Finally, the research recommended that commercial banks should continue setting up more agents. The regulators were encouraged to broaden the scope of agency banking framework so that agents can be allowed to offer more banking services. The study was only aimed the influence of agent banking on financial results of commercial banks in Kenya. Future investigations can focus on the effect of agent banking on other financial bodies, for example microfinance organizations, as well as the economy in general. Other research can also incorporate more variables like mobile banking, SME banking, E-banking (card and online) to gage the performance and growth of commercial banks and the economy in general