Effect of Diversification on Competitiveness of Commercial Banks in Kenya

Abstract

Background: Commercial bank diversification consists of the creation of many service branches across various geographical regions of the country involved, investment in asset kinds, lending book and other income streams, and lastly, interest revenue. Banks undertake diversification interventions to remain competitive. Some of these diversifications may directly impact revenue generation. However, the impact of diversification of assets on commercial banks remains a contentious issue in research. Therefore, the current study is designed to evaluate the individual effect of geographic, income, and asset diversification on commercial bank competitiveness in Kenya. Methodology: The research adopted the Expost Facto research design based on a positivist type of research philosophy. The study utilised 10-years (2009 to 2018) panel data collected by the Central Bank of Kenya (CBK). Data was analysed inferentially through correlation and regression analysis. Descriptive statistics was used to summarise the basic features of the data meaningfully. Results: Results showed that geographic, income diversification significantly (p-value<0.05) influence commercial bank competitiveness. However, asset diversification had a negative and insignificant effect on commercial bank competitiveness (p-value>0.05). T). Conclusion: There were statistically substantial influences of geographical and income diversification on the competitiveness of commercial banks in Kenya, while asset diversification had an insignificant association with the competitiveness of commercial banks.