Effect of Restructuring on Financial Performance of Commercial Banks in Meru County, Kenya

Abstract

Banking industry is section of financial sector. Its role in economy development cannot be overemphasized. Globally, it facilitates financial intermediation process. In Africa however, the commercial banks have been decreasing owing to tightening regulations, mergers, acquisitions, liquidations and collapses. On the same vein, profitability trend of commercial banks in Kenya have been fluctuating for the past eight years .This could be linked to raising inflationary pressure, emerging risks, concerns of public debt sustainability, fragile economic recovery among others. However, in an effort to enhance performance, commercial banks have been restructuring but it is not clear which restructuring strategy is most successful in doing so. The subject study therefore sought to examine effect of restructuring on financial performance of commercial banks in Meru County. It assessed the effect of technology adoption, downsizing of employees, business process reengineering and outsourcing on financial performance of commercial banks. The study was anchored on financial intermediation theory, resource-based view, technology adoption model and transaction cost theory. It employed descriptive research design, target population of sixty branch management staff and adopted census approach. It made use of structured questionnaire which was reliable for use in actual data collection since Cronbach's Alpha coefficient for each variable was greater than 0.7. The content validity of the questionnaire was enhanced by ensuring questions were formulated based on the objectives. Criterion validity was utilized to test how well results were relevant to measuring the effect of restructuring on financial performance. Additionally, it utilized both qualitative and quantitative data. Pilot testing was carried out in Fina Bank, Nanyuki branch, Laikipia County and Ecobank Kenya Karatina branch, Nyeri County to enhance reliability of questionnaire. Data was coded using SPSS and analyzed using descriptive statistic correlation and multiple regressions. Further, it was presented using charts and tables. The study discovered that downsizing, technology adoption, outsourcing and BPR positively and significantly affected the financial accomplishments of commercial banks in Meru County. The study concluded that downsizing of employees constructively and significantly influenced financial achievements of commercial banks. In addition, technology adoption is essential on financial performance of commercial banks. Likewise, outsourcing of services positively and significantly influenced fiscal performance of commercial banks. Furthermore, it was inferred that BPR enhanced financial accomplishments of commercial banks. Therefore, the study recommended that commercial banks should establish training programs to boost morale and instill commitment spirit among the employees left behind after downsizing process. In addition, they should employ entertaining language to capture the potential market available in social media. They should also outsource services that are expensive to nurture and has declining function. Last but not least, future researchers should consider exploring impact of innovation related risks on financial performance of commercial banks; challenges and opportunities posed by outsourced fintech services on financial performance goals of commercial banks; relationship in between BPR, organizational culture and organization performance. Eventually, the study may be replicated by future researcher in savings and credit societies in Kenya to establish whether the results realized would hold