AGENCY BANKING AND PROFITABILITY OF COMMERCIAL BANKS LISTED AT NAIROBI SECURITIES EXCHANGE, KENYA
AGENCY BANKING AND PROFITABILITY OF COMMERCIAL BANKS LISTED AT NAIROBI SECURITIES EXCHANGE, KENYA
Mukhtar Hassan Matan - Master of Science Finance Student, Department of Accounting and Finance, School of Business, Economics and Tourism, Kenyatta University, Kenya
Dr. Moses Odhiambo Aluoch (PhD) - Department of Accounting and Finance, School of Business, Economics and Tourism, Kenyatta University, Kenya
Dr. Mark Suva (PhD) - Department of Accounting and Finance, School of Business, Economics and Tourism, Kenyatta University, Kenya
ABSTRACT
Despite the instrumental role played by listed commercial banks in Kenya in terms of employment creation, these institutions are currently facing problems of the profitability. For instance, across the period 2018-2022, the value of return on equity has averaged at 13.15% against similar industry figures in South Africa estimated at 20.15%. This provide a clear indication that majority of the listed commercial banks in Kenya are underutilizing their equities to generate profits for shareholders. The inquiry’s essence was to establish the effect of agency banking liquidity agency banking fee and bank size on profitability. The transaction cost theory, market power theory and public interest theory of bank regulation. Relevant empirical studies were reviewed to inform the development of the conceptual framework anchored the inquiry. Positivist philosophy and explanatory design were used. The study adopted direct regression model and moderation regression model to achieve the analysis of the findings. This study targeted 12 listed commercial banks in Kenya and census was used since the population is small. Information in its secondary nature will be gathered with aid of data collection SPSS for descriptive analysis as well as inferential analysis aided by the sheet on a period from 2018 all trough to 2022. Prior to this, diagnostic tests covering Heteroscedasticity Test, multicollinearity and normality were done and appropriately interpreted. Results presentation was in tabular and graphical means. As part of the ethical concern, the study sought for relevant authorization documents. The study established that agency banking fee had significant effect on profitability of the listed commercial banks in Kenya. Furthermore, firm size was not significant while interaction term was significant and hence firm size as deduced to be a partial moderator variable. In conclusion, agency banking was a significant predictor of profitability of a financial institution. It was recommended larger banks in tier I and II should leverage the economies of scale they enjoy in the market to invest heavily in agency banking for more profit generation.
