The Effect of Agency Banking on the Financial Performance of Commercial Banks in Kenya

Abstract

The growth of innovative technology has remained a key strategy for the banking sector to remain competitive in this 21st Century. With advent of services such as mobile banking, internet banking and now the agency banking, the banking fraternity has really transformed its financial operations by providing convenient and accessible services to all facets of the banking market. The objective of this study was mainly to evaluate the extent to which the agency model has to the financial element of the commercial banks in Kenya. The study used secondary data, collected from Central bank, and its website. The data was analyzed using SPSS providing various parameters to show the strength of the relationship between the various variables i.e. no of agency banking quarterly and then yearly, agency banking income and net assets for the period. The data was graphically represented to illustrate different areas of growth in agency banking. From the statistical analysis it‘s revealed that there is a significance level of between the agency banking variables and the rate of return on Assets. i.e. from analysis, it depicted a strength correlation of 0.814,1 and 0.843 respectively on variables of agency banking units, rate of income over net assets and rate of agency income over overall agency income From the findings, it‘s evident that financial innovation such as agency banking continues to be instrumental tools on growth of the banking sector. With several advents of technology, the banks need to take advantage and utilize these platforms to enhance their returns. The study revealed that out of the 43 banks, currently licensed to carry out banking, 12 banks are fully throttle into agency banking, which gives a good representation. In summary, the study reveals that agency banking has significant positive effect on the ROA of the Kenyan banks. There exists a positive relationship between agency banking and banks‘ performances. In general conclusion agency banking has made a remarkable contribution to the financial performance of the banks, which herald a positive signal to the other banks to adopting the model.