Influence of Regulatory Enforcement on the Relationship Between Strategic Decisions and Performance of Commercial Banks in Kenya

Abstract

In any country, commercial banks play an important role in the economic resource allocation by channeling funds from depositors to investors continuously. To do so, they need to generate necessary income to cover their operations and these calls for effective strategic decisions to be adopted by the bank management. The banking business at the same time faces many challenges and the diversity of banking risks necessitates the need for regulation of the industry and this can affect the performance of the same banks. Consequently, the research sought to find out the influence of regulatory enforcement on the relationship between strategic decisions and performance of commercial banks in Kenya. The research design was a census survey whereby the population of the study consisted of all the 41 commercial banks operating in Kenya. The study used primary data which was collected through a self-administered questionnaires and the data collected was analyzed by the use of mean and standard deviations while presentations was done using tables, pie charts and percentages. The findings were that regulatory enforcement affected the performance of the commercial banks in Kenya and the most influential regulatory factor was the capital adequacy requirements, liquidity management and the supervisory powers enforced by the CBK. The strategic decisions that were found to influence the bank performance was the ability of the top management to scan the environment appropriately for opportunities and at the same time involve all levels of staff in the implementation of the same strategic decisions. From the regression, it was found that indeed regulatory enforcement was a moderating factor to strategic decision influencing the performance of the banks. The research concludes that there is need for appropriate regulations to be developed to guide the sector and the same regulation should evolve with the changes happening in the banking sector. The study recommends that the players in the banking sector should not consider the regulations introduced by the CBK as unnecessary obstacle but instead it is established for their own good since the study proved that the bank performance is better achieved when the bank strategic decision is supplemented with appropriate regulatory enforcement. The study recommends that a study be undertaken in a different industry facing regulation such as the sugar sector due to the challenges that the sector faces in being competitive like other firms in the COMESA market.