The effect of agency banking on financial performance of commercial banks in Kenya

Abstract

The banking business environment has changed and innovative technology has remained a key strategy for the banking sector to remain competitive. The banking fraternity has really transformed its financial operations by providing convenient and accessible services through mobile banking and internet banking. To this end banks are fast developing branchless banking such as ATM, internet and mobile banking among others (Laukkanen & Pasanen, 2007).Agency banking is among the latest inventions that have improved the banking services by increasing accessibility and convenience to customers. Agency banking model requires commercial banks to rely on the existing infrastructure such as supermarkets, hotels and petrol stations to reach out to customers. Banking agents are usually equipped with a combination of point-of- sale (POS)card reader, mobile phone, barcode scanner to scan bills for bill payment transactions, Personal Identification Number(PIN) pads, and sometimes personal computers (PCs) that connect with the bank’s server using a personal dial-up or other data connection. To drive decision making, ensure appropriate agent set up and channel support and permit subsequent performance evaluation against the original strategic intent (Sidiek, 2008). The objective of this study was mainly to evaluate the extent to which the agency model has contributed to the financial performance of the commercial banks in Kenya. Performance measures adopted was Return on Equity. In summary, the study reveals that agency banking has significant positive effect on the ROE of the Kenyan banks. From the statistical analysis it‘s revealed that there is a significance level between the agency banking variables and the rate of return on Assets. This implies that agency banking is continuously improving leading to significance increased financial performance in those banks that have rolled up the service due to its convenience and efficiency in operation. The recommendations are that commercial banks should fully embrace agency banking through adoption of improve d technology for information security volume of to make it more reliable to the customers. The government should support the program more often and reduce the high compliance costs, bureaucracy in registration and high cost of taxation