The effect of agency banking on the financial performance of commercial banks in Kenya

Abstract

Access to affordable banking services plays a fundamental role in the development of any economy. Agency banking has therefore proved to be a successful model in ensuring that most people who could not access conventional banking services are able to do so through contracted bank agents. The objective of the study was to determine the effects of agency banking on financial performance of commercial banks in Kenya. The study adopted descriptive research design. The target population for this research study was all commercial banks that have adopted the agency banking concept. The researcher collected secondary data that was extracted from the CBK’s annual and supervisory reports. The study used data covering a five year period from 2010 to 2013. Quantitative analysis was employed to analyze the collected data. This was made possible by use of (SPSS V.20.0). The findings revealed that there was a positive relationship between financial performance of commercial banks as measured by ROE and total assets. The findings further revealed that all the variables of the study were significant throughout the four year period. 62.3% of changes in the return on equity were attributed to only three independent variables. The study concluded that agency banking positively affects the financial performance of commercial banks. The study also concluded that commercial banks were able to extend their accessibility by citizens thereby improving their market share and revenue. The study recommended that more banks implement agency banking as the number of commercial banks that had implemented agency banking were thirteen out of a total of fourty three commercial banks. The study further recommended that more commercial banks set up agency banking to tap into the deposits and withdrawals which are key transaction revenue elements for commercial banks in terms of financial performance.