Branch network and performance: a study of commercial banks in Kenya

Abstract

This study investigated the impact of branch network on cornrnercial banks' performance using a hybrid of descriptive and analy:ic methodology. In particular a profit function was specifiec and estimated. Cross-sectional secondary data obtained from the. banks balance sheets and other records for the period 1988-89 was ana lysed using ordinary least squares (OLS) regression method. Performance was found to be enhanced by opening more offices in the large urban centres. Decline in profitability due to branching in rural areas was, however, found to be small in macnitude but statistically different from zero at the 5 percent level of significance. This was explained by lack of banking habit and absence of industrial and commercial activities in the rural sector. The policy issues arising from these findings are two fold. To facilitate resource mobilization, a positive rural branching orientation is necessary. Secondly, potential entrepreneurs in the banking industry stand to gain by taking the banking services to the rural mass and educating them on the benefits of banking services. These call for delocalization of industrial and commercial activities from large urban centres to rural areas or establish and/or encourage more state banks which would consider taking banking services to the rural areas as their priority