MODERATING EFFECT OF BANK SIZE ON THE RELATIONSHIP BETWEEN AGENCY BANKING AND GROWTH OF COMMERCIAL BANKS IN ELDORET TOWN, KENYA

Abstract

The role played by agent banking in enhancing commercial banks’ effectiveness cannot be underestimated. The purpose of this study was to examine the moderating effect of bank size on the relationship between agency banking and growth of commercial banks in Eldoret, Kenya. The specific objectives guiding the study included; to determine the effect of operational cost, agent selection, technology uptake and agent monitoring on growth of commercial banks. The study was anchored on three theories; institutional theory, agency theory and bank led theory. The research study adopted an explanatory research design. The target population was 1230 agency bankers. The sample size was 162 agency bankers stratified random sampled. A structured questionnaire was used to collect data. Standardization of research instruments were done by use of factor analysis and reliability measured by Cronbach’s alpha coefficient was above 0.7. Validity tested through expert judgement. Data collected was analyzed by descriptive statistics and inferential statistics techniques. PROCESS Macro tool was used to establish the moderating effect of bank size on the relationship between agent banking and growth of commercial banks. The regression model had R squared of .740 showing that 74% of the variation in growth of commercial banks can be explained by agency banking. Operational cost (β= - 0.461), agent selection (β=0.769), technology uptake (β=0.452) and agent monitoring (β=0.119) had significant influence on growth of commercial banks and bank size (β =0.576) positively influenced the growth of commercial banks. Interaction of agency banking and bank size (β=0.320) had significant influence on growth of commercial banks. The moderation model results showed R2=0.848 and was significant (p<0.05) an indication that bank size moderates the relationship between agency banking and growth of commercial banks. The agent selection, technology uptake, agent monitoring and bank size had a positive significant influence on growth of commercial banks in Eldoret, while operational cost had a negative significant influence. The bank size moderates the relationship between agency banking and growth of commercial banks. This study recommends the streamlining of operational costs involved in providing financial services. Some of these costs can be borne by the parent bank so as to ease the burden on the agents and eventually the consumer.