Effect of Agency Banking on the Financial Performance of Commercial Banks in Kenya

Abstract

This research studied the effect of agency banking on financial performance of selected commercial banks in Kenya. In obtaining the information regarding the current status of the phenomenon descriptive research design was used with respect to the variables. The study targeted the commercial bank that has implemented agency banking. According to CBK (2017) 18 commercial banks have since adopted agency banking. Secondary data was used in obtaining data from bank supervision reports, audited financial statements of commercial banks that have adopted agency banking as at December 2017. Data collected include cash transactions (withdrawals and deposits) through agents, and number of existing agents and number of accounts opened through agents over a five-year period from 2012 so as to compute the banks ROA that was obtained from the banks audited statement of comprehensive income and statement of financial position. A summary statistic of the research variables was generated from the data analysis focusing on the agency banking and financial performance indicators for the period of 5 years. To ascertain this chi-square test and a comparative analysis of the trends in financial performance for the 5-year period in comparison with the agency banking measured in terms of the rate of growth in the amount of cash deposited and withdrawn using bank agents and the number of new accounts opened by the agent. The Chi-Square test was used to determine if an association between variables reflects a real link between agency banking and financial performance. The research determined that improvement in agency banking enhances the financial Performance of Kenyan Commercial Banks. The studied independent variables described a significant 33% of the improvement in financial performance of as denoted by adjusted R2 (0.33). Hence this implies that the independent variables contribute 33% of improvement in financial performance while other aspects as well as random variations not explored in this study contribute 77% of the financial performance. This research found that there is a substantial effect on financial performance in agency banking. The research therefore suggests that organizations/commercial banks ought to ensure that they continually invest and explore other ways of enhancing agency banking for purposes of seeking competitive advantages that result in efficiency, reduction of unearning assets and thus better asset utilization.