Abstract:
The aim of the study was to determine the effect of entrepreneurial banking products on the financial performance of commercial banks in Kenya as key players in the banking sector over a period of four years. Specifically the study sought to determine the effect of loan commitments, financial swaps, standby letters of credit and financial options on the financial performance of entrepreneurial commercial banks in Kenya. The study used descriptive and qualitative research design targeting two senior managers in 43 commercial banks in Kenya making a sample size of 86 respondents. The study used primary data collected through administered questionnaires and secondary data from published central banks' annual reports. The independent variables were the off-balance sheet products unique to commercial banks while dependent variable was the consolidated financial performance of the commercial banks. The internal consistency of the questionnaire was tested by using Cronbach alpha and ranged between 0.735 and 0.877 indicating that the values were reliable and acceptable. Data was analyzed using descriptive statistics, factor analysis, principal component analysis, correlation analysis and regression analysis in SPSS to determine the relationship between the independent variables and the dependent variable. The results showed that loan commitments positively and significantly affected the financial performance of commercial banks in Kenya; Loan arrangement ( r2 = 0.050, p <0.05, Credit access (r2 = 0.069 p< 0.05) and locking fixed mark up over reference interest rates (r2 = 0.055, p<0.05). Financial swaps were also found to affect the financial performance of commercial banks in Kenya; Portfolio management as one of the indicators of financial swaps significantly and positively affected the financial performance of commercial banks in Kenya (r2 = 0.060, p<0.05) similar to speculation on financial swaps (r2 = 0.046 p< 0.05). Standby letters of credit and financial options also showed a similar trend of contributing positively and significantly to the financial performance of commercial banks in Kenya. Standby letters of credit were found to be significantly and positively affecting the financial performance of commercial banks (r2 = 0.051, p< 0.05). Financial options were also found to be significantly and positively affecting the financial performance of commercial banks in Kenya (r2 = 0.046, p< 0.05). It is therefore concluded that loan commitments, financial swaps, standby letters of credit and financial options positively and significantly influences the financial performance of entrepreneurial commercial banks in Kenya.The study therefore recommends that commercial banks should promote loan commitment, financial swaps, standby letters of credit and financial options as off balance-sheet products as approaches towards improving their financial performance.
