Relationship between commercial banking business models and financial performance for commercial Banks in Kenya

Abstract

The objectives of this study were to establish the business models applied by commercial banks in Kenya and to establish the relationship between banking business models and financial performance of commercial banks in Kenya. This was a descriptive survey design. According to the Central Bank of Kenya Register, there were 44 commercial banks as December 2008. The target population for this study was therefore all the all the 44 commercial banks operating in Kenya. Not all the banks had the data for the entire period as some of them were still new and there are a few others that did not respond within the time specified and were therefore construed as not being interested in the study. Thus, the final survey incorporated 35 commercial banks. These were chosen given that there is publicly available information on their performance. Both primary and secondary data were collected. Primary data were collected from the management of the commercial banks. The primary data was collected using structured questionnaires. The questionnaires were administered using the drop-and-pick method. Secondary data was also collected on the financial performance of commercial banks. These were collected from the financial statements of the commercial banks for a 7 year period beginning 2002 to 2008. The 7 year period was selected because within the last 7 years, there have been dynamic changes in the banking industry. The analysis was done in terms of descriptive statistics such as mean scores and standard deviations. For the secondary data, a regression was run with performance as the dependent variable and strategies (or banking model) as the independent variable.