Effect of drivers of responsible banking activities on performance of Commercial Banks in Kenya

Abstract

Globally, commercial banks have been keen on executing responsible banking initiatives in developed countries at a higher pace than in developing economies. This has resulted in major international banking institutions recording better financial returns. Locally, as of 2015 only 9 commercial banks had made strides in the adoption of responsible banking, despite the immense impact the activities have on the banks’ bottom line. Further, with increased evidence of the importance of adopting responsible banking initiatives to support financial performance there has been less than adequate examination of their contribution within Kenyan banks. The aim of this study was to examine the drivers of responsible banking-related initiatives and their effects on financial performance of commercial banks in Kenya. The study specifically analyzed the extent of adoption of responsible banking initiatives, the drivers of adoption and the impact of the drivers of responsible banking activities on the performance of banks. The study was grounded on the market power theory and institutional theory with a positivist philosophy being adopted in the research. The study further applied a descriptive research with the unit of analysis being the operational 41 commercial banks. The study sampled 135 officials drawn from the operational commercial banks. The study data were collected from structured questionnaires and the audited financial statements of the commercial banks and Central Bank of Kenya (CBK) reports. The study utilized descriptive analysis, explanatory factor analysis and regression analysis. The findings were presented graphically using charts and tables. The study was able to obtain a 76% response rate. The Spearman rank correlation tests indicated there was a positive and significant effect of management support, strategic position, regulatory environment on responsible banking activities and performance of banks. The ordinal regression findings showed there was a significant and positive effect of responsible banking activities and regulatory environment on bank performance. Further, findings indicated a negative and significant effect of management support on adoption of responsible banking and bank performance. Lastly, findings established a positive and insignificant effect of strategic planning on the bank performance. The study recommends that commercial banks should improve alliances and collaborations that can support meeting of sustainable banking standards within the banking industry. The study also recommends that commercial banks should continuously review their adoption of responsible activities that can support development of green finance within the industry. Further banks should review their internal operations, improve coordination, positioning and adherence to regulations which can all lead to better performance