Establishing the Relationship between Agency Banking Costs and Financial Performance of Commercial Banks in Uganda: A Case Study of Centenary Bank, Mbarara Branch Christopher Banura Ruyooka
- October 1, 2019
- Posted by: RSIS
- Categories: IJRISS, Social Science
International Journal of Research and Innovation in Social Science (IJRISS) | Volume III, Issue IX, September 2019 | ISSN 2454–6186
Christopher Banura Ruyooka
Ibanda University, Ibanda, Uganda
Abstract: Evidence shows that financial performance of commercial banks in developing countries has remained relatively poor. Most of the commercial banks have failed to meet their operational costs and this has forced them out of the market. The biggest challenge however has been the result of poor bank policies and products offered to a relatively small customer base. Therefore, the introduction of agency banking is to boost the revenue collection of these commercial banks, increase their profitability levels, create more efficient and real time systems, and improve their overall financial performance. It’s against this background, that this research paper aims at establishing the relationship between agency banking costs and financial performance of commercial banks in Uganda, taking Centenary bank Mbarara branch as the research case.This study adopted a quantitative descriptive non-experimental case study design where data was collected from 52 bank officials by the use of Survey questionnaire checklists. Data was then analyzed using SPSS statistical package. Background characteristics of respondents was generated by the use of tables, frequencies and percentages. In order for the study to test the hypothesis, correlations and regression analysis was used to reach at the significance levels.The study revealed that agency banking costs is a significant determinant for the financial performance of commercial banks with a standardized beta coefficient of (r=0.621, p<0.05) meaning that agency banking costs are significantly positively related with financial performance of commercial banks. The coefficient of determination/ r2 for agency costs is equal to 0.386 implying that a 38.6% variation in the financial performance of commercial banks is brought about by the agency banking costs. This further means that the financial performance of commercial banks improves with low agency banking costs. For instance, the costs involved in agency banking transactions is low compared to the banking hall transactions. Secondly, the cost of setting up a bank agency is transferred to the bank agent who benefits from the commission got from every transaction made by the customer. This creates a low cost for offering any financial service offered by the bank through the agent. Thirdly, agency banking has low infrastructural cost which have reduced the operational cost of the main branches. Last but not least, the time spent in agency banking is low compared to the time spent in the banking hall. Overall the study was important and concluded that agency banking costs play a significant role in improving the financial performance of commercial banks and hence creating financial inclusiveness where individuals have greater access to affordable and useful financial services and products that can meet their needs in a responsible and sustainable manner.
Key Words: agency banking costs, financial performance, commercial banks, Uganda.
