Abstract Book

Abstract

The Kenyan banking industry has been facing stiff competition from new entrants like mobile phone companies, international banks, and SACCOs. This led to a steady decline in banks’ financial results over the years, as reflected in their profit margins. In an attempt to wither competition, they adopted market expansion strategies to realize a more extensive customer base like opening new branches and operating beyond Kenyan borders. Hence, this research aims to examine value creation strategies and the performance of commercial banks in Kenya. The specific objectives were to establish the effect of cost reduction, revenue-raising, elimination of non-productive and financial innovation strategies on the performance of commercial banks. The study also sought to determine the moderating effect of bank size on the relationship between value creation strategies and the performance of commercial banks in Kenya. The study was informed by the innovation theory, value innovation theory, concentration-stability, concentration-fragility theory, and Schumpeter’s Innovation Theory of Profit. The study targeted all the 41 commercial banks in Kenya. Senior finance and senior operations managers working in the headquarters of the commercial banks were targeted from each bank. The study used both primary and secondary data. Primary data was collected using questionnaires while Secondary information was acquired from the commercial banks’ audited financial statements for the period 2014 to 2018. The obtained quantitative data through questionnaires was keyed into the statistical package for social sciences (SPSS) computer software (version 22) for analysis. Both primary and secondary data results revealed that cost reduction, revenue-raising, elimination of non-productive elimination, and financial innovation strategies had a positive and significant correlation with the performance of commercial banks. Findings also indicated that bank size had a moderating effect on the relationship between value creation strategies and the performance of commercial banks in Kenya. Therefore, the study recommended that bank management establish measures that reduce operating, overhead, marketing and staff costs to boost their performance. In addition, commercial banks also ought to eliminate products and services that have extremely low-profit margins, retrench staff and agents whose services have been rendered redundant, and adopt business realignment to exit business lines that have high costs and low-profit margins so as they enhance their organizational performance. They ought to continuously launch new services and products to meet customer requirements. These should include real-time and electronic transactions since they enable the bank to serve customers and positively affect commission fee-based income effectively. Policymakers have to be wary of the increasing level of competition in the banking industry and put in place appropriate competitive strategies to mitigate the challenges that come with the competition. These competitive strategies will enhance their performance and eventual survival in the industry.