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

Abstract

The twenty first century has been characterized by rapid growth and application of technology that entails innovative ways of doing business, in a way that enhances efficiency and effectiveness with reduced cost and improved productivity/ profitability. The banking sector in Kenya has encountered developmental innovations that includes; ATM, credit card, mobile banking, internet banking, youth oriented accounts, women oriented banking, children accounts, sharia compliant banks most recently agency banking since may 2010. This study sought to establish how agency banking has improved the financial performance of commercial banks in Kenya. The researcher was guided by objectives; to establish the extent of implementation of agency banking and financial performance and to determine the challenges facing commercial banks at implementation of agency banking. The researcher reviewed relevant literature and conducted a descriptive research design survey study to find out the effect of agency banking top financial performance of commercial banks. The results of the study indicate that to a large extent agency banking had been implemented by commercial banks practicing agency banking. That agency banking has improved the financial performance of commercial banks in Kenya in terms of profitability, reduced employment cost and establishing branches. A cross-tabulation was done by chi-square test to find out the relationship between bank operation cost and bank financial performance as a result of implementation of agency banking. The value for the association between bank operation cost and bank financial performance as a result of agency banking was obtained as 13.04 with 4 degrees of freedom and the significant result. Agency Banking has also its share of challenges that was generally agreed that there was room for improvement