Effects of Revenue Diversification into Non-Interest Income on Financial Performance of Commercial Banks in Kenya (A Case of Five Most Profitable Banks in Kenya)

摘要

The growth of non-intermediation income activities suggests intermediation activities areudbecoming less important part of banking business strategies and strategically, banks haveudshifted their sales mix by diversifying in income sources. Banks exist to inter-mediate theudtransactions between demanders and suppliers of money at a given consideration. Earningsudfrom these transactions form banks traditional income generating activities. This study set outudto determine the effect of foreign exchange trading, fees and commissions on loans andudadvances, government securities and sale and lease of assets owned by the banks on the fiveudmost profitable commercial banks financial performance. This research adopted anudexploratory design where the population of interest was drawn from the five most profitableudcommercial banks in Kenya; KCB, Equity Bank, Barclays, Standard Chartered andudCooperative Bank. The study focused on the head offices of these commercial banks andudparticularly on staff that are directly dealing with the day to day management of the banks asudwell as senior management (directors and general managers) since they are the onesudconversant with the effects of income source diversification into non-interest income sourcesudon financial performance of these commercial banks. Stratified random sampling was used toudselect the sample, taking a sample of 30% from each stratum. The study used both primaryuddata and secondary data. The questionnaires included structured and unstructured questionsudand was administered through drop and pick method to respondents who were the top, middleudand low level managers in the organizations. Data was analysed using descriptive statistics.udThe Likert scale was used to analyse the mean score and standard deviation, this helped inuddetermining the extent to which the bank uses various income diversification strategies toudinfluence its performance. The researcher further employed a Herfindahl-Hirschman Index toudmeasures the degree of diversification in a bank's net operating revenue. The researcherudfurther employed regression model to study the relationship between the bank financialudperformance and income diversification into non interest incomes by banks. The studyudestablished that all the banks in the study had diversified into noninterest income. It was alsoudestablished that fees and commissions, foreign exchange, sale and lease of assets owned byudcommercial banks and government securities influenced financial performance ofudcommercial banks in Kenya.