Diversification strategies in the banking industry in Kenya

Abstract

The study sought to identify the types of bank diversification strategies in Kenya and to determine the benefits and costs of diversification on the commercial banks in Kenya. This was a cross-sectional survey of commercial banks in Kenya. The population of this study was all the commercial banks which had been operating in Kenya for at least five years. This study was a census of all the 43 commercial banks that had been operating in Kenya. Primary data was collected using questionnaires. The head of strategy or his/her appointee in each of the selected commercial banks filled in the questionnaires. The questionnaires were entered into the SPSS after being sorted and coded and analysed and interpreted using descriptive statistics and t-statistics. The results were summarised In terms of the objectives of the study and presented in form of tables. The study revealed that three types of strategies (horizontal diversification, vertical diversification and geographical diversification) were prevalent within the banking industry in Kenya. But the most used strategy was the horizontal diversification followed by the geographical diversification. The study therefore concludes that the banks are using various diversification strategies in the industry in order to be competitive in the market. On the benefits of bank diversification, it was noted that benefits included greater income growth potential, improvement of the performance of distribution channels, risk control, acquisition of new technology, and change of business focus. The study concludes that there are a number of benefits of bank diversification available to commercial banks but improvement of core competencies/capabilities was not one of the significant benefits. The study recommends that there is need for banks to diversify more in services so as to enjoy the enormous benefits of bank diversification. It is also recommended that commercial banks should consider more of customer segmentation and offer the products that can help improve the performance of such business segments. It may also be of interest for banks to offer more of self-service products such mobile and online banking given that the internet connectivity has been upgraded in Kenya with the introduction of fibre optic cable. More studies need to be done in this area especially to unearth which type of diversification has a significant influence on bank performance.