| dc.description.abstract | Financial services companies around the world are seeking to upgrade their core
banking systems to improve competitiveness, operational efficiency, and regulatory
compliance. However, such initiatives are especially challenging for most institutions.
In a survey on the implementation of Basel II regulations, CBK (2008) found that
some Kenyan banks had failed to implement the regulations due to challenges in their
core banking systems.
The purpose of this study was to: determine factors leading to replacement of core
banking systems in commercial banks in Kenya; establish the challenges that
commercial banks in Kenya encounter in the process of core banking systems
replacement; and determine the effect of core banking systems replacement on bank performance. This research was carried out using a descriptive survey design. The target population
of this study was all the 43 commercial banks in Kenya as at 31st December 2011. No
sampling was done since the population was small (N=43). The research instrument
for this study was a questionnaire. Data was collected from IT directors of the 43
operational commercial banks in Kenya. This data was manipulated through
descriptive statistics such as percentages, range and mean scores and regression
analysis. Presentation of data was through tables.
Study results indicate that there are various factors that lead banks to replace their
cores. These include their technologies being outdated, to reduce cost and improve
efficiency, to enable adoption of new customer centric strategies, to enhance business
Challenges faced in the process of core banking system replacement include agreeing
on what is actually necessary, security issues, empowering employees to use the new
system, vendor capabilities and credentials, risk of the software capability to meet
requirements and expectations, unavailability of the diverse skills required and data
migration. Findings also indicated that replacing core systems has a significant
positive effect on financial performance.
The following recommendations were made. First, banks need to be mindful of the
challenges associated with core banking deployments. These challenges, once
understood should be mitigated properly and perfectly managed. Secondly, the small
and medium banks must appreciate that technology is an enabler and should adapt to
change that make the technology transformation. Lastly, banks that have not replaced
their core systems should have plans to do so and should learn from the leaders on the
benefits and challenges. | en |
