Effect of Business Process Reengineering on Financial Performance of Tier One Commercial Banks in Kenya

ABSTRACT : The Commercial banks in Kenya have reported a decline in or worsening of most of their financial performance indicators profitability, loan portfolio, and asset quality. The main aim of the study was to investigate the effect of business process reengineering on financial performance of tier one commercial banks in Kenya. Specifically, the study examined the effects of Diaspora banking, bancassurance and real time gross settlement on financial performance on tier one banks in Kenya. A descriptive research design was adopted for the study. The study population was 48 respondents who composed of eight finance directors and forty finance officers. Data was then analyzed and presented in tables. The study findings revealed that the banks enhance their loans portfolio because of diaspora banking. It was further revealed that the banks have recruited new customers since the inception of diaspora banking. It was reported that bancassurance has improved interest margins, improved the earnings at minimal cost, stabilized their profits and provided the tier one commercial banks with endless opportunities to earn high fee income at low cost. It was observed that bancassurance opens doors to new markets for growth hence there is little or no competition. The study observed that, real time gross settlement has lowered our firms’ maintenance cost of individual and business accounts. It has also facilitated the transfer of funds from one account to the other within the banks and across to other financial institutions. Similarly, banks have reduced cost of cheques through real time gross settlement. The findings also indicated that the bank has been able to process high value cash transactions safely between two accounts. The study observed that banks have reduced bankruptcy costs, regulatory costs and moral hazards. RTGS has resulted to tax advantages, transparency and customization. The study recommends that tier one commercial banks should in Kenya to provide more platforms in which people can access diaspora banking service and Central bank of Kenya to provide enhanced regulation on diaspora banking. Also, bancassurance should be used to improve interest margins. Lastly Tier one commercial banks should enhance their use of the RTGS services.
KEYWORDS : Bancassurance, business process reengineering, diaspora banking, real time gross settlement