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The objectives of this study were to establish the business models applied by commercial
banks in Kenya and to establish the relationship between banking business models and
financial performance of commercial banks in Kenya. This was a descriptive survey
design. According to the Central Bank of Kenya Register, there were 44 commercial
banks as December 2008. The target population for this study was therefore all the all the
44 commercial banks operating in Kenya. Not all the banks had the data for the entire
period as some of them were still new and there are a few others that did not respond
within the time specified and were therefore construed as not being interested in the
study. Thus, the final survey incorporated 35 commercial banks. These were chosen
given that there is publicly available information on their performance. Both primary and
secondary data were collected. Primary data were collected from the management of the
commercial banks. The primary data was collected using structured questionnaires. The
questionnaires were administered using the drop-and-pick method. Secondary data was
also collected on the financial performance of commercial banks. These were collected
from the financial statements of the commercial banks for a 7 year period beginning 2002
to 2008. The 7 year period was selected because within the last 7 years, there have been
dynamic changes in the banking industry. The analysis was done in terms of descriptive
statistics such as mean scores and standard deviations. For the secondary data, a
regression was run with performance as the dependent variable and strategies (or banking
model) as the independent variable.
The study found that long-tail banking model was not so much used within the industry.
Generally, the mean score for the model was 1.85 meaning that the model is least used
within the banking industry. Generally, the mean score for the use of premium banking
model was 2.084 which means that not so many banks use it. The regional banking model
had a general mean score of 2.362 indicating that the model is used by a moderate
number of commercial banks. The general mean score for the self-service banking model
was 2.638 showing that the model was also moderately used in the industry. The
corporate banking model had a mean score of 3.495 indicating that majority of the banks
used the model. The regression statistics show that there is a positive correlation between
banking business models and bank performance. Thus, the model a bank chooses to use
or a combination of them, influences the financial performance of the bank.
The study recommends that seems a banking model has a positive influence on a bank’s
financial performance; each commercial bank needs to define well what model it intends
to use and therefore focus on reaping the benefits of using the model. In such times the
present times when the financial institutions are experiencing financial crises, it is
important that the models used be based on understanding the local financial system and
putting in place models that will thrive even under periods of financial instability. There
is need to carry out more research in this area especially given that the fact that the
Islamic banking model is gaining entry into the country. It would be interesting to
understand the dynamics of Islamic banking model and establish what influence it may
have on the banking industry in Kenya.



Assistant Coordinator

Dr. Mose Aranga

Assistant Coordinator

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