The effect of credit card usage on the financial performance of commercial banks in Kenya

Abstract

The study investigated the effect of the credit card usage on the performance of commercial banks, that is; whether the credit card usage will increase or decrease the profitability of commercial banks. The study adopted a casual research design. Secondary data for seven commercial banks for the period between 2009 and 2013 was used. The data was drawn from the published annual reports of commercial banks and the Central Bank of Kenya. Descriptive statistics such as means score, frequencies and percentages for each variable were calculated. The analysis involved multiple regressions of variables under study that is the financial performance represented by return on assets, number of credit cards offered during the period of study, the number of transactions done by the customers using the credit cards, the amount of money customers have transacted using the credit cards, leverage ratio of banks and the age of banks. Using OLS regression method, inferential tests including the Pearson Product – Moment Correlation Coefficient and regression analysis was conducted. The result established coefficient of determination of 0.612 (R=0.612) between credit card usage and financial performance of the commercial banks. The study recommends that commercial banks should revise the interest rate charged on the credit cards. This has the end effect of encouraging consumers to increase the usage of credit cards.