Income source diversification and financial performance of commercial banks in Kenya
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Date
2011-01-21Author
Teimet, Paul Rotich.
Ochieng, Damianus Okaka.
Aywa, Shem.
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The profitability of commercial banks depends heavily on the net of income generating activities and
the related activities’ expense. Due to the problem of profitability and stiff competition in the industry,
commercial banks have changed their behavior of income sources, by increasingly diversifying into
non-intermediation income generating activities as opposed to the traditional inter-mediation income
generating activities. The objective of this paper was to establish the impact of income source diversification on financial performance of commercial banks in Kenya. This has been achieved through:
establishing the level of income source diversification of commercial banks in Kenya and establish
whether income source diversification improves financial position of commercial banks. This was a
census study of all registered 44 commercial banks in Kenya and relied heavily on documentary secondary data for 5 year study period (2005-2009) and validated by primary data achieved through keyinformant method. Herfindahl-Hirschman Index, Correlations and Regression analysis were mainly
used and revealed on aggregate that all commercial banks in Kenya are diversified with large banks
in lead while Islamic banks trail. Further, diversification level has a positive influence on financial
performance of commercial banks in Kenyan and the two main revenue streams are positively related.
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