Abstract

This study sought to establish the determinants of growth in the banking industry in Kenya. The research objectives were; to establish the determinants of growth in the banking industry in Kenya and to determine the indicators used to measure growth in the banking industry in Kenya. The study employed descriptive cross sectional survey design. The population was all the 43 commercial banks based in Nairobi County. The data was collected using a semi structured questionnaire. Descriptive statistics was used to analyze the quantitative data while regression was used to establish the relationship between the variables and growth in the banking sector in Kenya. The study found that firm size, profitability, product development, market penetration and innovation and technology significantly enhance growth in the banking industry in Kenya. Profitability affects growth in the banking industry to a great extent and contributes significantly to the growth in the banking industry. Market development was a significant determinant of growth in the banking industry. Through market development banks create new market, adopt suitable diversification growth strategy as well as create new products for existing markets. The market penetration significantly enhanced the growth in the banking industry in Kenya. Therefore, market penetration was a significant growth determinant in the banking industry as they readily penetrate local and foreign markets, increase their existing market share and respond easily to new market opportunities.  Innovation and technology were found to significantly enhance the growth in the banking industry in Kenya. Through the innovation and technology banks gain competitive advantage as well as perform better than non-innovating firms in terms of growth. The most significant determinant of growth in the banking industry in Kenya is size of the firm followed by profitability, market penetration, product development, and innovation and technology respectively. The study recommends that banks must be focused in terms of their needs and using the right technology and innovation to achieve goals, rather, than investing in innovation and technology because other banks have it. The government’s participation in ensuring focused telecommunication industry must be visible to reduce or remove avoidable costs of investing in innovation and technology by the banks. Slow market penetration is another major problem militating against the growth in the banking industry in Kenya. Government must make right policy to ensure fair competition in the banking industry in Kenya and promote market penetration by respective banks. The banking firms in Kenya should invest more in research to understand the changing trends in customer need to inform their product development. The banks should also reinvest in market expansion to increase the size of the firms and consequently spur their growth.

Key words: Growth, profitability, product development, market penetration, innovation, technology.