Influence of expansion programs on the performance of commercial banks: the case of banks in Nairobi county, Kenya

Abstract

This study sought to establish the influence of expansion programs on the financial performance of commercial banks in Nairobi County, in Kenya. The study aimed at establishing whether the financial performance of the commercial banks is influenced by the banks decision to invest in expansion programs. The study sought to answer the following research question, how does Opening of new branches influence the performance of Commercial banks in Nairobi County? How does Growth in Customer Base influence the performance of Commercial banks in Nairobi County? To what extent does Growth in Loan book influence the performance of Commercial banks in Nairobi County? To what extent does portfolio diversification influence the performance of Commercial banks in Nairobi County? Descriptive research design was employed to establish what influence the independent variables have on the dependent variable. The target population comprised of selected employees in specific job cadre from the eleven listed commercial banks. All the 55 senior commercial banks managers were interviewed. For a bank to qualify it needed to have been listed in the NSE and must have had been in operation during the entire period of the study. The selection of the respondents followed purposive sampling procedure; this is so as to ensure only employees conversant with expansion programs were interviewed. The sample size comprised of the entire populations of 50 respondents. This was so because the target population was less than 100.The 50 respondents were arrived at after dropping 5 respondents who took part in the pilot testing. In the study both primary and secondary data collection techniques were used. Questionnaires were administered to the sampled group. Document analysis was used to obtain variable information specifically from audited financial statements. Data collected was analyzed using SPSS and the findings presented using descriptive statistics. Frequency tables were used to analyze the background data on age, level of education, number of years of experience. In the study 47 out of 50 (96%) respondents responded thus satisfying the data collection criteria. The study found out that there is a positive relationship between expansion programs and the performance commercial banks in Nairobi County, in Kenya; however, some of the coefficients were not significant. Expansion in growth of loan book was found to have the highest influence on the performance of the commercial banks with a coefficient of 0.502 followed by growth in customer base at 0.487.Portfolio diversification and Opening of new branches have the least influence at 0.179 and 0.01 respectively. The coefficients on Opening of new branches and portfolio diversification were found not to be significant. The coefficients on both growth on customer base and Loan book are significant. The study recommends that the banking sector and central government ensure expansion programs be implemented and an optimal mix be established on a case by case basis.