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OUTSOURCING PRACTICES OF THE KENYAN BANKING SECTOR

Dulacha G. Barako

Curtin University of Technology, Australia

 

Peter K. Gatere

Central Bank of Kenya, Kenya

ABSTRACT

This paper presents contemporary evidence of outsourcing practices of the Kenyan banking sector. A questionnaire was sent to forty commercial banks operating in Kenya. Descriptive analysis results indicate that Automated Teller Machine (ATM) services are the most outsourced function in the sector, while customer account processing is the least outsourced function. Banks associate outsourcing activities with high reputational, operational, strategic and contractual risks. Outsourcing benefits highlighted are: freeing of resources, cost reduction, access to specialised vendors, focus on core competence, flexibility and improved services. Results of logistic regression indicate that bank size measured as total asset is significantly associated with outsourcing decisions. Bank performance measured as Return on Assets and ratio of Non-Performing Loan (NPL) is not statistically associated with outsourcing decisions. Similarly, banks‟ wage bill and total operational expenses are not significant determinants of outsourcing decisions. The findings have regulatory policy implications, and in particular the urgent need for formulating a guideline to regulate the apparent proliferation of outsourcing practices in the Kenyan banking sector.

Key words: Banks, Kenyan Banks, Outsourcing, benefits, risks

JEL Classification: M2, N27