Responses of banks offering custodian banking services to environmental changes affecting the banking industry in Kenya
Chapter one contains the background information and purpose of the study. The purpose of this study was to determine responses of custodian banks to environmental changes affecting the banking industry in Kenya. The objectives were two fold, namely:(i) To analyze the changes in the banking environment that affected custodian banking services and the challenges posed by these changes, and (ii) To identify the strategic and operational responses being employed by the custodian banks in response to the changes in the banking environment. In Chapter two we see the study of environment of organizations and organizations responses to the environment. The study clearly indicates the environmental dependence nature of an organization and that the organization strategy has to be changed in order to adapt to the changing environmental conditions which is only possible through organizational capability changes. Further, the literature review also puts forward the strategic and operational responses employed by organizations to changing environmental conditions, including diversification, restructuring, collaborative, generic, marketing, product, price, place, promotion, operation and technology, financial, human resource and procurement strategies. Some of these responses are also employed by custodian banks in response to changes in the banking industry. In Chapter three, the procedures for conducting the research are discussed. The study employed a census survey design. A census survey was used in the study. This was found suitable because the population of custodian banks licenced with retirement benefits authority and capital markets authority consisted of 8 banks as at 30.06.2007. Data analysis was conducted using descriptive statistics. These included measures of central tendency, like the mean, frequency distribution tables and charts. The research first, concludes that economic growth, legislative and regulatory and technological advancement changes affected custodian banking services in Kenya. This correlated well with the observation carried out in the literature review by Hoskisson et al (1997) who pointed out that external environment plays a significant role in the growth and profitability of firms. The high percentage scores on the changes means that changes in the banking industry to a greater extent affected custodian banking services. Also the research concludes that most custodian banks in Kenya face various challenges imposed by both the external and internal environments. High ranking of these challenges are in the areas of service demand, customer expectations, increased competition, legislative compliances, income distribution and saving culture. The high standard deviations on some of the challenges demonstrated dispersion of the scores across the different respondents for these variables. The responses employed by custodian banks to the changes and challenges in the banking industry were in the areas of corporate restructuring, business process re-engineering, down sizing, outsourcing of non core services, diversification, pricing and embracing information technology systems. Bearing in mind that the custodian banks are varied in size, this again agrees with the literature review that organizations are environment serving and dependent Hunger and Wheeler (1990) and that they have to respond either strategically or operational to environmental changes in order to survive Barton and Martin (1990) .The strategic responses practices will vary with the size of the organizations; that small banks are limited by the scarcity of resources to respond to some of the changes in the banking industry hence explaining why there are only 8 out of 52 commercial banks offering custodian banking services in Kenya as at 30th June ,2007.