The relationship between green banking and financial performance of commercial banks in Kenya

Abstract

For a very long time banks have operated without considering how their operations affect the environment. Recently there has been an emergence of a new concept in banking called green banking which is basically promoting environmentally friendly practices and reducing carbon footprints from banking activities. The implementation of green banking has been a challenge to so many commercial banks as they fear that it will increase their expenses and disrupt their normal operations. In this light the researcher has decided to establish whether there is a relationship between green banking and financial performance of commercial banks in Kenya. The researcher used secondary data from Central Bank of Kenya, Communications Authority of Kenya and Kenya National Bureau of Statistics. The target population was all the 43 commercial banks in Kenya, making the study a census. Secondary data was used in the study relating to financial performance and green banking initiatives of the commercial banks in Kenya for the period between 1st January 2011 and 31st December 2013. The data was collected from the annual reports of Central Bank of Kenya and also those of Communications Authority of Kenya. The data/information collected was used to study the variables. The research design used was descriptive. In order to establish whether there was a relationship between green banking and financial performance, the researcher used two green banking initiatives: mobile banking and online banking. Data was analyzed using regression analysis. The researcher also assessed the capital adequacy and liquidity of all commercial banks in Kenya to establish whether there was truly a relationship between green banking and financial performance. The financial performance measure used in the study was the aggregate profit before tax of all Kenyan commercial banks. Tables were used to present the data, while SPSS computer software aided in the analysis. The findings of the study were that there is a significant relationship between green banking and financial performance of commercial banks in Kenya. The findings also show that the two independent variables studied, explain 100% of the changes in the financial performance of commercial banks in Kenya as represented by R2. The study found significance level was 0.001 and therefore there is a very significant relationship between green banking and financial performance of commercial banks in Kenya. Hence the linear regression is very significant in predicting how green banking affects financial performance of commercial banks in Kenya. The correlation coefficient of the study was 1; this means that there is a perfect positive relationship between financial performance and green banking. This also means that an increase in mobile banking and internet banking will lead to an increase in financial performance. The study makes the following recommendations: banks should increase awareness and CSR activities to sensitize both internal and external customers. CBK and other agencies should promote more publicity on the relationship between the banks and the environmental concerns that are related to financing policies. Finally the government could use this study to formulate friendly policy on environment conservation which the banks should adopt. There is a need to establish the effect of green banking in the economy, cost savings and risk management.