EFFECT OF ALTERNATIVE BANKING CHANNELS ON LIQUIDITY OF COMMERCIAL BANKS IN KENYA

Abstract

Commercial banks depend on customer deposits to create assets by advancing loans to households and entities in need of capital. Customers also would be in need of their deposits from time to time and in some cases without notice. A delicate balance should therefore be made by commercial banks to ensure that enough funds are availed for unpredicted deposits while also advancing loans. Liquidity – easily convertible assets – can be achieved through encouraging deposits in customer accounts easily and conveniently, a threshold which is regulated by the banking sector regulator. This study examined the effect of alternate channels of banking on the liquidity of commercial banks in Kenya. Specific research objectives included to determine the effect of mobile banking, internet banking, ATM banking and agency banking on the liquidity of commercial banks in Kenya. The study relied on the Technological Acceptance Model, Diffusions of Innovations, Technological Determinism and Agency theories forming the theoretical and empirical reviews from previous studies. The study adopted a descriptive research design with the population of the study being 60 market monthly observations on liquidity of the licensed commercial banks in Kenya as at 31 st December 2018 where through census sampling, secondary data for a five year period between 2014 and 2018 was collected from central bank supervision reports and banks' financial statements. The time series regression model was adopted for the research and data was analyzed using both descriptive and inferential statistical analysis with the help of the Statistical Package for Social Sciences (SPSS). Results of the study revealed a positive and significant effect of mobile banking, ATM banking and Agency banking on the liquidity of commercial banks although internet banking showed a negative and significant effect on liquidity of commercial banks. There is need for the regulator to review the regulated liquidity ratio of commercial banks in the wake of increased adoption of alternative channels of banking. Banks should also assess their adequacy in the investment on alternate banking channels to take advantage of liquidity from these sources while enhancing customer experience. Key words: Alternative Banking Channels, Mobile Banking, Online Banking, ATM Banking, Liquidity CITATION: Chirchir, A. K., & Oluoch, O. (2019). Effect of alternative banking channels on liquidity of commercial banks in Kenya. The Strategic Journal of Business & Change Management, 6 (2), 1173 –1187.