IMPACT OF COMERCIAL BANKS ON ECONOMIC GROWTH: A CASE OF KENYA

Abstract

Information technology has significantly transformed various aspects of life, with the banking sector being one of the most impacted areas. Technological innovations have not only changed daily routines but have also revolutionized banking practices. According to the Kenya Bureau of Statistics (2011), over 7 million adults in rural Kenya remain under-banked or unbanked. This is partly due to the high operational costs associated with maintaining bank branches and the relatively low volume of business transactions in rural areas, making branch expansion a less viable option. Advances in technology have provided service providers with greater flexibility to meet customer needs. Agent banking, supported by various technologies, enables financial institutions to monitor transactions conducted through retail outlets. This study, guided by previous international research, explores the impact of agency banking on the financial performance of commercial banks in Kenya. Adopting a descriptive survey approach, the study revealed that the central bank’s regulation of agency banking positively influenced the financial performance of commercial banks. It was also found that lower transaction costs through agency banking had a favorable impact on banks' financial performance. Furthermore, increased customer access to financial services via banking agents contributed positively to the financial outcomes of these institutions. Finally, the study indicated that an expanding market share significantly boosted commercial banks' profitability, as it allowed for operational scaling and efficiency improvements.