Internationalization of Indigenous Kenya Commercial Banks Within Eastern Africa: a Survey of Selected Commercial Banks

Abstract

In Kenya there are currently 43 commercial banks and one mortgage financial institution. Out of these banks 31 are owned by indigenous Kenyans while the rest are foreignowned. Of the 31 indigenous banks only five have recently established fully-fledged operations in the regional foreign markets. These markets include Uganda, Tanzania, Rwanda, Burundi and Southern Sudan. This study sets out to determine the motives of internationalization of indigenous commercial banks of Kenya. The objectives were to establish the determinants of internationalization of indigenous commercial banks. The study was also set to establish the benefits arising from the internationalization as well as determine the challenges that are faced by these banks as they seek to internationalize. To answer the research question. 3 commercial banks were targeted for survey out of the 5 indigenous banks with foreign operations. Primary data was collected through interviews using a structured questionnaire and secondary data was collected by way of desk reviews of relevant literature. In total 7 senior managers were interviewed from 2 targeted commercial banks. A number of them were able to fill in the questionnaire on their own while others preferred a face-to-face discussion. Content analysis was used to analyze the qualitative data. Descriptive statistics were computed for the quantitative data. The study finds that the main determinants/motives of internationalization for indigenous commercial banks revolve around pursuing a business growth strategy and the need to enjoy economies of scale and scope. Scale economies would not always be achieved in the domestic market mainly due to competition especially from the more established players. At the core of the business growth strategy is the need by the banks to follow their customers and be able to offer holistic solutions across the various countries that their clients operate in. By serving their customers better they are able to enhance their network revenues from an end-to-end perspective. The other motive of internationalization of the indigenous banks into the region is to diversify financial and political risks. On the other hand, the benefits of internationalization of indigenous commercial banks include growth in profitability, growth in share prices, growth in asset and capital base and creation of opportunities for career growth across the various geographies they operate in. However, to enjoy these benefits the banks have had to overcome various challenges. Included in these challenges are the different regulatory and legal frameworks that govern the operation of banks in various countries. Language and cultural barriers in different countries is also a challenge. Competition for business as well as availability of adequate and skilled manpower in certain regional markets is also a notable challenge. The study concludes that the need to follow customers in their footprint as they diversify markets, to spread and mitigate financial and political risks, to enjoy economies of scale and scope, and to grow their markets are the key determinants of internationalization of indigenous commercial banks. Secondly, it concludes that internationalized banks have benefited from growth in profitability, market share price and increase in asset base and capitalization. The study recommends that more indigenous banks seek growth opportunities in the region after conducting comprehensive feasibility studies.