Influence of Product Diversification on Financial Performance of Commercial Banks Involved in Mergers and Acquisitions from the Year 2010 in Kenya

Abstract

Problem Statement:  Interest rate capping has been seen as a threat to the improved profitability of the banks in Kenya and hence the need for banks to diversify their income sources. However, the ratio of gross non-performing loans to gross loans deteriorated from 12.7 percent in December 2018 to 12.5 percent in December 2019 and to 14.5 percent in December 2020.

Purpose:  This study sought to establish the influence of product diversification, functional diversification and mergers on financial performance of Commercial banks involved in mergers and acquisitions from the year 2010 in Kenya.

Design/Research Method: The study utilized the descriptive research design and targeted eleven (11) commercial banks involved in mergers and acquisitions from the year 2010 in Kenya.

Finding: The correlation analysis results revealed that there was a positive and a strong significant association between product diversification and financial performance (r=0.657, p=0.000). The hypothesis test results show that product diversification statistically influences financial performance (β = 0.520, Ï = 0.000< 0.05).

Implication: Product diversification improves financial performance.

Recommendation: The study recommends that commercial banks involved in mergers and acquisitions since 2010 in Kenya make only minor adjustments to their existing operations as the current diversification measures have been successful.