Determinants of Non-interest Income in Kenyans Commercial Banks

Abstract

The main objective of this study is to investigate the determinants of non-interest income in Kenya’s commercial banks. An empirical analysis is carried out to determine the impact of bank specific characteristics, technological development and macroeconomic factors on commercial banks noninterest income. A panel data of 2003-2012 is used in this research paper. The main findings are that non-interest income of commercial banks in Kenya is affected by management efficiency, bank’s size, technological development and macroeconomic factors. Bank size and management efficiency is positively and significantly related to non-interest income while ATM development, inflation and growth of gross domestic product are negatively and significantly related to non-interest income. An important policy implication of this research paper is that a policy on diversification should be put in place by the government to avoid relying on traditional bank activities. Commercial banks should make every effort to increase their size by diversifying their products through investing in financial market and selling mutual funds in the market. To increase their equity to asset ratio banks should issue more shares through rights issue or post incorporation issue so as to diversify their investments towards non- interest income. Government can control inflation through the use of direct intervention price policy to control the prices of lending in the market this will in turn encourage banks to think of other sources of income other than depending on the traditional interest income.