Diversification and competition among commercial banks in Kenya

Abstract

Kenya’s banking industry has experienced drastic changes in the last few decades. This has led to stiff competition, as the fight for customers seems to be never-ending war. Commercial banks as a result use diversification to gain competitive advantage. With the liberalization of the economy, players in the banking industry have been facing fierce competition. The objective of this study was establish the relationship between Diversification and Competition among commercial banks in Kenya. This study used cross sectional descriptive research survey. The target population was commercial banks in Kenya. The study used primary data collected using questionnaires administered through drop and pick later method. Quantitative data collected was analyzed using descriptive statistics. Statistical Package for Social Sciences (SPSS V. 21.0) was used for data analysis. The study findings established that diversification have a strong correlation with competition among commercial banks in Kenya as indicated by Pearson correlation of 0.921. Among the key areas that diversification had focused on include; mobile and internet banking, provision of treasury and trade finance, investment portfolio, provision of forex exchange, custody services, agency banking, provision of selection lending services and investment banking. The consequences of such diversification was increased competition amongst commercial banks. The study revealed that as result of diversification, competition among commercial banks has been heightened to a very great extent especially on customer deposits, profit margins and customer value. The researcher recommends to the policy makers to enact policies that regulate diversification being undertaken in the banking industry. Further, strategic planning managers should enhance diversification in areas that have less diversification such as insurance services. For further studies, the researcher recommends for investigation into how diversification into different area at different times affects competition among commercial banks in Kenya