PRODUCT DIVERSIFICATION AND PROFITABILITY OF LISTED COMMERCIAL BANKS IN KENYA
PRODUCT DIVERSIFICATION AND PROFITABILITY OF LISTED COMMERCIAL BANKS IN KENYA
Douglas Maranga - Masters Student, Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr. Richard Ngali, Ph.D., CFE - Jomo Kenyatta University of Agriculture and Technology, Kenya
Joshua Matanda Wepukhulu, PHD - Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
The general purpose of this research was to determine the effect of product diversification on profitability of listed commercial banks in Kenya. Product diversity is a strategy used by commercial banks and other financial institutions to increase overall profitability. However, not all of the items in their portfolios are successful, due to the risk inherent in each of the products that make up their portfolio. This research is crucial because it will contribute to the current body of knowledge and assist policymakers, investors, and banks in making sound investment diversification decisions. The main goal of having a diverse product was to ensure that maximum profits were made based on the returns. As a result, there was still a knowledge vacuum over whether banking product diversification improves the profitability of listed commercial banks in Kenya or not, necessitating the necessity for this research. As a result, the goal of this study was to look at how portfolio diversification, as represented by bancassurance, financial securities, real estate, and trade finance, affected the profitability of commercial banks listed on the Nairobi Securities Exchange (NSE). Modern Portfolio Theory, Agency Theory, and the Diversification Strategy Model drove this research. The study used a descriptive research methodology using a census approach to examine Kenya's 11 publicly traded commercial banks. To determine the link between the studied variables, the study relied on secondary data acquired from financial reports of the aforementioned institutions. The data on the listed banks' profitability was gathered using data collecting sheets. Diagnostic tests were carried out to see if the collected data was suitable for analysis and drawing conclusions from. The study shows that product diversity, as measured by factors such as bancassurance, financial securities, real estate, and trade finance, and profitability, as measured by ROA for commercial banks listed on the Nairobi stock market, have a substantial link. The research factors have a significant influence on the listed banks' profitability. As a result, increased product variety in banks resulted in increased profitability. Bancassurance, financial securities, real estate, and trade finance are all study factors that have a positive significant link with the profitability of Kenya's publicly traded commercial banks. The beta coefficients back this idea as well. Because the beta coefficients are positive, each 1-unit rise in bancassurance, real estate, financial security, and trade finance will result in an increase in profit of 0.317, 0.292, 0.153, and 0.167 units, respectively. To boost their profitability, listed commercial enterprises should engage in bancassurance, financial securities, real estate, and trade finance, according to the report.
