Environmental Factors and Performance of Commercial Banks in Kenya

Abstract

The performance of commercial banks in Kenya determines the financial position of the nation. This performance, over the past period, has not been inspiring and various reforms have been put in place in to increase it. Yet, performance of commercial banks on average has been erratic. The business environment in which the commercial banks function is turbulent, and it is through understanding the environmental forces, that they can improve their performance. The study’s general objective involved finding out the impact of environment factors on Commercial bank’s Performance. Specifically, the study focused on the following objectives; to find out the influence of the organizational resources on the performance of the commercial banks in Kenya; to determine how organizational structure influences the performance of commercial banks in Kenya; to establish the influence of competition on the performance of the commercial banks in Kenya; and to establish the moderating effect of government policies on the influence of environmental factors on performance of commercial banks in Kenya. The contingency theory, resource based view and the theory of competitive advantage informed this study. The research employed a descriptive research design. The population of this study comprised of the 43 commercial banks operating in Kenya. The study targeted the head office of each of the commercial banks and the respondents were the marketing managers. A pilot study was conducted using customer experience executives of four commercial banks. The study conducted a census of the 43 head marketing managers of the financial Institutions in Kenya. The study used structured questionnaires to collect data. The study used face, content and construct validity and reliability was measured using the Cronbach’s Alpha coefficient. Analyzing of data was done through descriptive and inferential statistics using the SPSS software. The findings were presented using charts, tables, and graphs. The study concludes that organizational resources had significant influence on performance with and without government policies.  Organizational structure had a great impact on commercial banks performance.  Competition had significant influence on performance of commercial banks with or without the moderating influence of government policies.  The government policy had significant moderating influence in the relationship between environmental factors and performance of commercial banks.  The research recommends that the top management team of all commercial banks operating in Kenya should improve on their organizational resources by ensuring adequate number of employees is in place in various departments and functions. The management of all firms in the financial sector in Kenya should improve on their structures by engaging subordinate staff in decision making on daily operations of the firm. The management team of all commercial banks should come up with better strategies of remaining competitive in the industry in view of other industry participants with similar product offering like other banks, microfinance institutions and SACCOs. The Central Bank of Kenya should increase its supervisory and monitoring role among commercial banks to positively influence their performance. There is need for strong market intelligence to collect information on products and services of competitors for constant improvement and thus performance among commercial banks.