FACTORS AFFECTING FINANCIAL PERFORMANCE OF GOVERNMENT

OWNED FINANCIAL INSTITUTIONS IN KENYA: A CASE STUDY OF

NATIONAL BANK KITENGELA BRANCH, KAJIADO COUNTY

BY:
Ouma Francis Ogero

A RESEARCH PROPOSAL SUBMITTED IN PARTIAL FULFILLMENT FOR THE

REQUIREMENT OF THE AWARD OF DIPLOMA IN BUSINESS
MANAGEMENT TO THE KENYA INSTITUTE OF MANAGEMENT

NOVEMBER 2022

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 DECLARATION
Declaration by the student
This research is my original work and has not been presented to any other
examination body. No part of this research should be presented without my consent
or that of Kenya Institute of Management.

Name :__________________________ Sign: __________ Date:_________________

Registration Number
KIM/148433/21

Declaration by Supervisor
This research has been submitted with my approval as Kenya Institute of
Management Supervisor.
Name _________________________ Sign _____________ Date ______________
Lecturer supervising

For and on behalf of the Kenya Institute of Management

Name ______________________ Sign ___________ Date ________________

Branch Manager - Kitengela Branch

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Up DEDICATION
I dedicate this project to God, the almighty, for providing me this opportunity to
further my studies and grant me the ability to proceed successfully, I would also like
to thank My family and Friends for support and encouragement through the entire
writing.

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 ACKNOWLEDGEMNT
I acknowledge the Kenya Institute of Management for allowing me to undertake my
studies and providing a supportive learning environment. I also thank the Kenya
Institute of Management lecturers and management of National Bank, KITENGELA
BRANCH. My sincere gratitude goes to my supervisor Mr Elphas Nyakuti for his
understanding, forbearance, guidance and critical comments towards the writing of
this Research Project.

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 ABSTRACT
This study sought to determine factors affecting financial performance of
government owned financial institutions in Kenya. The specific objectives are to
evaluate the effect of information technology, leadership styles, government policies
and staff training on financial performance of government owned institutions. The
research will be of great significance to the management of National Bank, future
researchers and other private and even public institutions. The researcher will use
primary and secondary data in the study whereby the primary data will be collected
through the distribution of questionnaires. The questionnaires comprise both open
and closed questions which will be distributed in top management, middle
management and operational staffs. Simple random sampling will be conducted to
obtain the sample size of the respondents. The target population for the study are
130 officials with a sample size of 65 employees. The findings will then be analyzed
quantitatively and qualitatively and presentation of data will be by use of tables and
figures.

TABLE OF CONTENTS
DECLARATION………………………………………………………………………………………………………….ii
DEDICATION…………………………………………………………………………………………………………….iii
ACKNOWLEDGEMENTS………………………………………………………………………………………………i
v
ABSTRACT………………………………………………………………………………………………………………….v
TABLE OF CONTENTS……………………………………………………………………………………………..…vi
LIST OF TABLES………………………………………………………………………………………………………..vii
LIST OF FIGURES…………………………………………………………….……………………………………….viii
LIST OF ABBREVIATIONS/ ACRONYMS………………………………………………………………………ix
OPERATION DEFINATION OF TERMS…………………………………………………………………………X

CHAPTER ONE
INTRODUCTION AND BACKGROUND OF THE STUDY……
1.1 Introduction………………………………………………………………………………………………………1
1.2 Background of the study…………………………………………………………………………………….1

V
1.3 Statement of the problem………………………………………………………………………………….4
1.4 Objectives of the Study………………………………………………………………………………….5
1.5 Research Questions……………………………………………………………………………………………5
1.6 Significance of the Study…………………………………………………………………………………….6
1.7 Limitations of the Study……………………………………………………………………………………..6
1.8 Scope of the Study……………………………………………………………………………………………..7
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction………………………………………………………………………………………………………8
2.2 Review of Theoretical Literature………..……………………………………………………………..8
2.3 Critical Review………………………………………………………………………………………………...26
2.4 Summary……………………………………………………………………………………………………..….26
2.5 Conceptual Framework……………………………………………………………………………………27

CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
3.1 Introduction………………………………………………………………………………………………………29
3.2 Study Design……………………………………………………………………………………………………..29
3.3 Target Population…………………………………………………………………………………………..…29
3.4 Sample Design…………………………………………………………………………………………………..30
3.5 Data Collection Procedures……………………………………………………………………………….30
3.6 Data Analysis Methods………………………………………………………………………………………31

CHAPTER FOUR
DATA ANALYSIS, PRESENTATION AND INTERPRETATION OF FINDINGS

4.1 Introduction………………………………………………………………………………………………………32
4.2 Presentation of Findings……………………………………………………………………………………32
4.3 Summary of Data Analysis…………………………………………………………………………………46

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 CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSSIONS AND RECOMMENDATION
5.1 Introduction……………………………………………………………………………………………………..48
5.2 Summary of Findings………………………………………………………………………………………..48
5.3 Conclusion………………………………………………………………………………………………………..49
5.4 Recommendation……………………………………………………………………………………………..50
5.5 Suggestion for Future Research…………………………………………………………………………50
REFERENCES……………………………………………………………………………………………………………51
APPENDICES
Appendix I: Authorization Letter
Appendix II: Questionnaire

LIST OF TABLES
Table 3.1 Target population…………………………………………………………………………………29
Table 3.2 Sample size…………………………………………………………………………………………..30
Table 4.1 Response rate……………………………………………………………………………………….32
Table 4.2 Gender response…………………………………………………………………………………..33
Table 4.3 Age response………………………………………………………………………………………..34
Table 4.5 Education Level…………………………………………………………………………………….36
Table 4.6 Work experience…………………………………………………………………………………..37
Table 4.7 Response information technologies affect financial performance…………38
Table 4.8 Extent information technologies affect financial performance……………..39
Table 4.9 Response leadership styles affect financial performance………………………40
Table 4.10 Extent government policies affect financial performance………………………41
Table 4.11 Response government policies affect financial performance…………………42
Table 4.12 Extent government policies affect financial performance……………………..43
Table 4.13 Response training affect financial performance………………………….………..44

VII
Table 4.14 Extent training affect financial performance…………………………………………45

LIST OF FIGURES

Figure 1.1 Organization structure……………………………………………………………………………..4

Figure 2.1 Conceptual framework…………………………………………………………………………..27
Figure 4.1 Response rate………………………………………………………………………………………..32
Figure 4.2 Gender response……………………………………………………………………………………33
Figure 4.3 Age response………………………………………………………………………………………….34
Figure 4.5 Education level……………………………………………………………………………………….36
Figure 4.6 Work experience…………………………………………………………………………………….37
Figure 4.7 Response information technologies affect financial performance………….38
Figure 4.8 Extent information technologies affect financial performance……………….39
Figure 4.9 Response leadership styles affect financial performance……………………….40
Figure 4.10Extent leadership styles affect financial performance………………………….41
Figure 4.11 Response management styles affect financial performance……………….42
Figure 4.12 Extent government policies affect financial performance…………………..43

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Figure 4.13 Response training affect financial performance………………………………….44
Figure 4.14 Extent training affect financial performance……………………………………….45

LIST OF ABBREVIATIONS
AG Auditor General
ATM Automated Teller Machine
ICT Information Communication Technology
GM General Manager
KIM Kenya Institute of Management

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 OPERATIONAL DEFINITION OF TERMS

INFORMATION TECHNOLOGY ; The application of computers and internet to store,

retrieve, transmit and manipulate data or information.
GOVERNMENT POLICY : Declaration of a governments political activities,
plans and intentions relating to a concrete cause or at the assumption of office.
LEADERSHIP STYLE : Leadership style of providing direction, implementing
plans and motivating people.
TRAINING : Teaching or developing in oneself or others any skills
and knowledge that relate to specific useful.

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XI
 CHAPTER ONE
INTRODUCTION OF THE STUDY
1.1 INTRODUCTION
This chapter introduces the study; it contains background of the study, statement of
the problem, objectives of the study, research questions,and significance of the
study and limitations of the study.
1.2 Background of the Study
Ongore (2010) in the study undertaken to establish the relationship between
ownership structure and performance of listed firms found out that ownership
concentration and Government ownership have noteworthy relationships with firm
performance. Conversely foreign ownership, diffuse ownership, corporation
ownership and manager ownership were found to have significant positive
relationship with firm performance. The banking sector is prominent and pertinent
sector of the economy since it determines to great extent the overall growth of the
economy and the standard living of their customers. The banking industry of ant
nation is the machinery which propels the development and growth of its economy.
Many commercial banks like equity have been established and thereby giving
grounds to the competitive banking services that may bring about satisfactions to
their customers that later translates to institutions financial performance. These
services could vary depending on the patronage of the customers, their level of
consumption and savings.
In this research perspective, financial performance can be said to emphasize on
variable related directly to financial report. Performance is the function of the ability
of an organization to gain and manage the resources in several different ways to
develop competitive advantage Iswatia and Anshoria (2007). Further , its important
to indicate that Organizational performance in the other hand comprises that actual
output or results of an organization as measured against its intended outputs ( or
goals and objectives). Richard et al,. (2009) have indicated that organizational
performance encompasses three specific areas of firm outcomes : financial
performance ( profits, return on assets, return on investments, etc.): product market
performance (sales , market share, etc.): and shareholder return (total shareholder
return, economic value added, etc.). Organization are increasingly being customer

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centric and are embracing customer- driven initiatives that seek to understand,
attract, retain and build intimate and build long term relationship with profitable
customers ( kotler, 2006).
The era whereby firms just concentrated on adding to their customer base has
become a thing of the past. Customer retention has been very vital to all business of
late. Any business with the aim of sustaining growth should not aim at only adding
up its customer base but have a strategy of maintain them. This will provide the
avenue for cross-selling of products and services (Khamalahet al, 2007). As
organization are increasingly becoming focused and driven by customer is becoming
equally challenging to satisfy and retain customer loyalty. (Oliver, 2009) suggests
that both service quality and customer satisfaction are two distinct but related
constructs. It is particularly true for the services firms where increased level of
customer satisfaction results in profit maximization.
Financial performance is a vital to several stakeholders of commercial banks. The
parties include shareholders and bond holders, direct competitors, regulators,
financial markets, credit rating companies, depositors and other market participants
(Casuet al, 2006). Banks play a fundamental role in finance. They determine firms
capital structure and cost of capital. Banks also oversee the companies that they
lend money to, thereby providing important governance oversight to client
companies. In some countries, banks additionally try to influence company decisions
by directly owning company shares and appointing directors ( Santos & Rumble,
2006).
In a study on financial performance of Islamic and Conventional banks in UAE, (Al-
Tamini, 2010) found that liquidity and concentration were the most significant
determinants of convectional national banks performance while cost and number of
branches were the most significant determinants of Islamic banks performance. This
is a reflection of management dynamics to being keen on the variables that
particularly likely to affect the overall financial performance of the bank, and this
cannot be easily achieved if management fails to re-evaluate their contribution to
the whole process.
In a study undertaken in Zimbabwe in financial sector, it has been postulated that,
‘to understand how well a bank is doing, there is need to start by looking at a bank’s

2
income statement, the description of the sources of income and expenses that affect
banks profitability’ (Mishkin & Eakins, 2014). Therefore, in order to determine
commercial bank performance in Zimbabwe, statement of comprehensive income
are used, but enable comparability with other commercial banks in other countries,
commercial banks performance are further measured by calculating return on
equity and net interest margin. This is not entirely one-way aspect but along with
other variables customer service and management commitment must be reflected at
all levels.
In study undertaken in Rwanda on financial sectors (Melissa, 2006) has postulated
that bank customers have become increasingly demanding, as they require hiogh
quality, low priced and immediate service delivery.
They want additional improvement of value from their chosen banks. Service
delivery in banks is personal, customers are either served immediately or join a
queue (waiting line) if the system is busy. These customer patronage could be
described as the backbone of highly liquid financial performance of an institution.
In other words, the faster they get attended to, the more customer would be
encouraged to keep their money with a bank.
In study carried in Kenya in monetary institutes, banks performance measurements
involve four core areas, outreach to poor, repayment rates, sustainability and
efficiency. Empirical evidences on performance of microfinance institutions reported
different results, most of them indicating variation of performance across types of
banks. With stiffer competition among domestic and foreign banks, therefore it is
important for the commercial banks to improve the quality of their services. The
growth of competition in Banks has led to the customer being stronger because he
or she has many options to choose from (Rosenberg, 2009).
Its those banks that have excellent customer satisfaction levels that succeed in this
environment of hyper competition. Success of a service provider depends on the
high quality relationship with customers which determines customer satisfaction and
loyalty, (Aluda, 2009). The corporate objective of any bank which is ‘’ maximization
of shareholders wealth ‘’ can be achieved if customers are retained and satisfied.
This is in line with the perception that the key to successful marketing of financial
services is Identification and packaging of customers ‘needs to their satisfaction,

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(Rispa, 2007). As globalization and liberalization of financial institutions accelerate,
competition among banks in offering products and services becomes more intense.
In spite of such limiting banking strategy, the rapid transformation of retail banking
sector has redefined the role of banks from financing trade to one of mobilizing and
channeling resources more effectively to customer needs. These changes were
indicated by the emergence of many new financial institutions, the introduction of
new financial instruments and services, the securing of financial operations, and
elimination of strict gender demarcation lines among different types of customers,
(Marylin, 2009). These changes in the banking system have created a new
dimensioning banking industry within which the banks have to compete both
vertically and horizontally for consumers disposable income. The competition in
banking sector is very high due to regulatory imperatives of universal banking and
also due to customers awareness of their rights.
1.2.1 Profile of National Bank Kitengela
National bank is a large financial services provider in Kenya, serving individuals, small
-to- medium companies and businesses (SMEs) and large corporations.
Headquartered in Nairobi, the national bank owns one subsidiary company: National
Bank Trustee and Investment Services Limited. As of December 2013, National Bank
of Kenya’s asset base was valued at about US$137.2 million (KES:11.85billion). At
that time, National Bank of Kenya was ranked number eleven , by assets ,among the
forty-three commercial banks licensed in the country then. The stock of National
Bank is listed on the Nairobi Stock Exchange, where it trades under the symbol , the
bank was established in 1968 as a 100% government - owned financial institution.
1994, the Kenyan Government reduced its shareholding to 68% by selling 32%
shareholding to the public.
The government further divested from National Bank over the years, until its present
shareholding of 22.5%, as of August 2014. Following 12 years of poor financial
performance, the bank became profitable again in 2010, paying out an annual
dividend every year since.

4
Figure 1.1 Organization Structure of National Bank.

General manager

Finance Auditor Sales Operations

General Manager

Accountant Auditors Asst, sales

Assistant
Manager
Operation

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Sources : Author (2017)
1.3 Statement of the Problem
In most of the times the financial performance of a firm can be analyzed in terms of
profitability, dividend growth, sales turnover, asset base, capital employed among
others. However , there is still debate among several disciplines regarding how the
performance of firms should be measured and the factors that affect financial
performance of organizations ( Liargovas & Skandalis, 2008). Zeitun and Tian (2007)
underscored the significance of the study of the effect of ownership structure and
concentration on firms performance to the literature of finance theory.
Subsequently numerous studies have been conducted across the world in bid to
understand the relationship the relationship the effect of ownership of firms and
their respective performances.
It can be said that a large body of available academic research across many countries
has demonstrated that highly developed banking sector plays important role in
facilitating economic growth. While banks in developed countries are able to
perform well, this is not the case in developing countries especially those that are
government owned despite their various efforts this has bot efficiently been
achieved. Studies available in this area have not been exhaustive , and this therefore
made it essential to find out the factors that affect the financial performance of
government of government owned financial institutions a case of National Bank of
Kenya.
1.4 Objectives of the Study
1.4.1 General Objective
The general objective of the study will be to determine the effects of customer
service management on financial performance in banking industry in Kenya.
1.4.2 Specific Objectives
i. To investigate the effect of information technology on financial performance of
government owned financial institutions in Kenya.
ii. To establish the effect of leadership styles on financial performance of
government owned institutions in Kenya.
iii. To evaluate the effect of government policies on financial performance of
government owned institutions in KENYA

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iv. To determine the effect of training on financial performance of government
owned financial institutions in Kenya.

1.5 Research Question

i. To what extent does information technology affect financial performance of
government owned financial institutions?
ii. How does leadership style affect financial performance of government owned
financial institutions.?
iii. To what extent does government policies affect financial performance of
government owned financial institutions in Kenya?
iv. How does training affect financial performance of government owned financial
institutions in Kenya?

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1.6 Significance of the Study

1.6.1 The Management of National Bank of Kenya

This study will be significant to the bank to have a clear understanding of how to
boost performance so as to enhance the company's performance and customers
satisfaction. This in turn will lead to efficiency within the banking sector.
1.6.2 Other Researchers
This research study will be of great importance particularly for future researchers for
it will provide them with adequate information and act as a big source for literature
review for their research studies as well as source of secondary data reference.
1.7 Limitations of the Study
1.7.1 Confidentiality
The respondents did not give adequate information to what they said lack of
confidentiality. The researcher persuaded them that information was needed for
academic purposes and nobody would be accused for any information provided. The
researcher also showed them the introduction letter from the college to convince
them to provide the information freely.

1.7.2 Bureaucracy
It was a serious problem to gain access to the banks premises due to the strict
security measures that have been put in place to guard the institution. Entry/access
was only authorized to staff members with job cards and other relevant documents
of authority like working pin code. Anyone without these documents is thereby
denied a chance to get into the institutions premises. The researcher overcame this
by showing out his student Identification Card and also the introduction letter from
the college.

1.7.3 Lack of Co-operation

The researcher found some staff members who were not willing to share
information required for research. To overcome this challenge, the researcher
pleaded with the management to allow visit during breaks so as to avoid
inconveniences during working hours.

8
1.8 Scope of Study
The study will be confined to the factors affecting financial performance of
government owned financial institutions in Kenya with specific reference to National
Bank Kenya,
(Kitengela Branch) located in Kitengela town Area, Kajiado County. The study targets
130 Bank officials from top level management, middle level management and
subordinates. The study will take a period of three months from September to
November 2022

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 CHAPTER TWO
LITERATURE REVIEW
2.1 INTRODUCTION
This chapter reviews existing literature related to the current study. It comprises the
review of theoretical studies, critical review, summary and conceptual frame work.
2.2 Review of Theoretical Literature
2.2.1 Information Communication Technology
Mishra and Ritu (2012) defined IT as means that is used to produce process, store ,
retrieve and send information, whether in form of written digital or image. The
outputs of IT are represented in the appearance of many areas of development like
sophisticated program, which include expert systems, artificial intelligence,
databases, office automation, internet, extra-net, e-mail and remote
communications technology. In this context, it can be said that IT depends mainly on
use of techniques and software also its applications depends on several stages to its
launch, from data acquisition, which includes the organization, tab storage, coding,
analysis to get the results ranked stage to take advantage of them at the appropriate
time. In this note that IT represents the technological aspect of the information
system which is also as an alternative to it at other times.

In study carried out in London ( jackmill, 2009), it is indicated that ICT has particular
brought a complete paradigm shift on the banks performance and on the customer
service delivery in the banking industry. In a bid to catch up with global development,
improve the quality of customer service delivery, and reduce transaction cost, banks
have invested heavily in ICT, and have widely adopted ICT networks for delivering a
wide range of value added products and services. The ICT development has
significant effect on development of more flexible and user- friendly banking services.
Technology has several contributions that it makes on banks performance and
facilitation of service delivery after its adoption. Customer satisfaction and customer
service delivery is key parameter for banks to ascertain how effectively they are able
to deliver on institutional goals.

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In Zimbabwe background Adesina and Ayo (2010) indicates that today, information
and communication technology has became the heart of banking sector, while
banking industry is the heart of every robust economy. It is absolutely evident that
the current recession, in European crises, and in turn. ICT has created a new
infrastructure for the world economy to become truly global and also provided the
users of new technology a competitive advantage over their rivals. Electronic
banking system has become the main technology driven revolution in conducting
financial transactions. However , banks have made huge investments in
telecommunication and electronic systems, users have also been validated to accept
electronic banking system as useful and easy to use. Castells (2007) reveals that, now
transactions worth billions of dollars can only take place in seconds in the electronic
circuit throughout the globe by pressing a single button, consequently this advances
to contribution to financial performance of the banking industry.

According to loonam et all,. (200) in study carried out in Zaire , although , ICT has
revolutionized the way of living as well as conducting businesses and study of
banking industry has received increased attention over the last decade, it continuous
to pise challenges for marketers and academic alike. ICT advancements, globalization,
competition and changing social trends such as heightened customer protectiveness
and increased preferences for convenience have caused intense restructuring of the
banking industry. Apparently , to identify and examine the impact of ICT on banks
performance and customer service delivery , the researcher exploded various
articles/journals , relevant literature and existing practice of electronic banking. In
today's business, competition, deregulation and globalization have compelled banks
to offer service 24hours around the globe, whereas the significance drawback, on
the other hand lies in its inconvenience and security factors. However , both these
factors have significant and profound impact on banks performance and customer
service delivery. The relationship that revolves between ICT expenditures, banks
performance delivery is conditional upon the extent of network effects. If the

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networks are low, ICT is likely to; reduce payroll expenses, increase market share,
increase revenue and profit.

Interestingly in Kenya, Kozak (2005) investigated the influence of the ICT evolution
on the profit and cost effectiveness of the banking industry within the stipulate
period of 1992-2003. for this period, the study declares a significant relationship
between the executed ICT ,productivity and cost savings. The modernization of ICT
has set the stage for extraordinary improvement in banking procedures throughout
the world. For instance, the development of worldwide networks has considerably
decreased the cost of global funds transfer Vietnam, (Berger, 2008) reveals banks
that are using ICT related products such as online banking, electronic payments,
security investments, information exchanges, and financial organizations can deliver
high quality customer services delivery to customers with less effort.

Further more, in a broader perspective, ICT , deregulation and globalization in the

banking industry could reduce the income streams of banks and thus the strategic
response of the banks, particularly the trend towards internal cost cutting, mergers
and accusations are likely to change the dynamics of the banking industry. The main
issues that can prevent consumers positively with their lifestyle. Apparently, there
are always potential of crisis which make the bank endure an insufficiency; advanced
ICT supported by superior mechanism control is required to make certain that ICT
has achieved the required processes. A review of some related literature s reveals
that ICT may essentially affect negatively banks efficiency and may reduce
productivity. This notion was noted ( Solow, 2007),” you can see the computer age
everywhere these days, but in the productivity statistics”.
However , since 1970s to the time Solow was claiming that there was huge
decelerating in growth as the technologies were becoming ubiquitous. On the same
vein, the paradox has been defined by Turban, et al. (2008) as the “discrepancy
between measures of investment in ICT and measures of output at the national
level”. ICT has been one of the most essential dynamic factors relating all efforts : it
cannot improve banks’ earnings. This was revealed in an extensive survey conducted
in USA for the period of 1989-1997 (SHU & Strassmann 2007). Conversely, there are

12
various literature that debunk Solows claiming in totality and approve the positive
impacts of ICT expenses to business value. In a comprehensive research conducted
by ( Saloner & Shpard 2006) in USA within the time frame of 1971-1979 reveals that
the interest of network effect is significant in utilizing an Automated Teller Machines
(ATM's). Milne (2006) also encourages and supported the notion of the above
authors.
Simpson (2012) reveals that electronic banking is motivated largely by prospects of
operating costs minimization and operating revenues maximization. An evaluation of
online banking in developed and emerging markets reveals that in developed
substitute for physical branches for delivering banking services. Bloemer et al ( 2008)
were on the view that most models in banking industry of customer evaluation of
services focus on the comparative judgement of perceived service quality and
customer satisfaction. Customer also develop perceptions during the service delivery
process and the compare their perceptions with the actual service received from
banks employee. Thus customer expectations are unique prior to a satisfaction.
Customer services, by definition, are intangible and easily duplicated. They can be
divided into high touch or high- tech services.
High - touch services are mostly dependent on people in the service process
producing the service. In most of the times high-tech services are predominantly
based on use of automated systems, IT and other types of physical resources.
However , one should always remember that high- touch also includes physical
resources and technology based systems that have to be managed and integrated
into the service process in a customer oriented fashion ( Gronroos, 2011).
Consequently , electronic banking services include both high-tech and high-touch
services. For example, high-tech services include online banking, mobile
banking ,ATM etc whereas high-touch services consist of instructions and personnel
assistance in using the services. ICT is the automation of process, controls and
information production using of computer, telecommunications software and
ancillary equipment such as ATMS and debit cards ( Khalifa, 2006)

ICT has particularly brought complete paradigm shift on banks performance and on
the customer service delivery in banking industry ( Aliyu and Tazmin, 2012) now days

13
the banking system is slowly shifting from traditional banking towards relationship
between banks and its customers handled by face to face interaction in branch
whereas contemporary banking, customer demanding more flexible and accessible
service everywhere and anytime. Technology innovation in banking sector some of
the service that technology is providing to the financial services are ATM's , mobile
banking, branch network, telephone banking, internet banking , etc

The banking today is redefined and re-engineer with the use of ICT in the banks
stars offering more sophisticated services to customers with continuous product and
process innovation ( Tiwari and Kumar)

Today dynamic and stiff market competition forced banks to spend all their
resources on improvement of service delivery and the value activities in order to
survive and become productive.
According to Agbolade (2011) claimed that the most significant shortcoming in
banking industry today is a wide failure on the past senior management in banks to
grasp the importance of technology and incorporate it into their strategic plans
accordingly in addition to this the management id oblivious to the current banking
situation that require determination to fully address all the challenges related with
ICT.
According to Ayada et al ( 2011) it is imperative for banks management to intensify
investment in information technology product to facilitate speed, convenience and
accurate services or otherwise they may loose out customers to other competitors.
Agawam and Jain, ( 2013) also agreed that intense competition among the banks has
redefined the concept of the entire banking system, the banks are looking for new
ways not only to attract but also to retain their customers and gain competitive
advantage over their customers.

The application of IT concept techniques, policies and implementation strategies to

banking service has become a subject of fundamental importance and concerns to all
banks.

14
Agboola, ( 2006) studied the impact of computer automation on banking service in
Lagos and discovered that electronic banking is tremendously improved the service
of banks to their customers.
2.2.2 Leadership Style
Lee and Chuang (2009) have indicated that leadership has been identified as an
important subject in field of organizational behavior; leadership is one with the most
dynamic effects on individual and organizational intentions. In other words, the
ability of management to execute a collaborated effort depends on certain
leadership styles and capability. The excellent leader not only inspires subordinates
potential to enhance efficiency but also meets their requirements and in the process
organizational goals are realized.
In study carried out in London, it has been indicated that today's business
environment, the role of service provision has gained considerable momentum
Slotegraaf, (2007). Noticeably, organizations are moving away from a selling focus
towards a service focus on the type of leadership styles in an attempt to satisfy the
needs of customers more efficiently and effectively (Anderson, 2006). In this context,
service quality is recognized as a means of achieving differentiation, customer value
and satisfaction (Heskett, 2001). The quality of these interaction between customers
and employees has been empirically proven to be a source of satisfaction for service
customers. As such it becomes imperative therefore to have quality leadership style
to manage organizations appropriately so as to enhance institutional financial
performance.
The study carried out in Nigeria on effects of leadership on organizational
performance on small enterprises, Mehra, Smith , Dixon and Robertson (2006) argue
that when some organizations seek efficient ways to enable them outperform others,
a longstanding approach is to focus on the effects of leadership. Team leaders are
believed to play a pivotal role in shaping collective norms, helping teams cope with
their environments and coordinating collective action. This leader-centered
perspective has provided valuable insights into the relationship between leadership
and team performance, in effect this leads to financial performance. The services
marketing literature is rife with references to the importance of leadership in the
delivery of higher service encounter quality. Surprisingly, however, little research has

15
to date attempted to formally conceptualize service leadership. Thus , although
service leadership has been deemed crucial to the provision of higher levels of
service encounter quality (Zeithaml and Bitner, 2006), the lack of any psychometric
scales or empirical tested relationships means that the question of how service
managers should lead still remains
The study carried out ion Rwanda (Lytle, Hom & Mokwa, 2008) indicate that
conceptual overview based upon a cross- disciplinary literature reviewed studies that
highlighted the importance of leadership styles in both the management of
customer-contact employees and enhancement of overall service encounter quality.
The study focuses on the interaction between service managers , employees and
customers in the delivery of service quality and how the adoption of leadership
styles by service managers can increase the quality of this interaction in providing
customers with greater levels of service quality. Although employees are considered
predominantly responsible for customers perceptions of service encounter quality
since they represent the organization to customers during the course of service
encounters. Managers are nevertheless able to influence employee attitudes and
behaviors during service delivery (Zeithaml and Bitner, 2006). Thus employees
attitudinal influences such as role ambiguity or persona motivation will undoubtedly
affect their behaviors such as their ability to adapt to different customers. It is such
background of strong leadership equipped with appropriate styles that in one way or
the other in a bigger way contributes to financial performance of enterprises.

In Uganda business environment operations are in one way or the other success due
to the leadership traits that are displayed by those involved in giving service. In turn
customers perceptions if service encounter quality are made up of elements such as
assurance, empathy and responsiveness ( Berry, 2008) conceptualizes that
leadership styles adopted by managers have been argued to influence the
effectiveness of the service delivery process, resulting in greater levels of service
quality being provided to organizational customers ( Zeithaml & Bitner , 2006). The
types of leadership, such as transactional or transformational may therefore
influence employees service attitudes and behaviors, as well as the
interrelationships between these constructs and managerial service delivery inputs

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that include: feedback to employees ( Jaworski & Kohli, 2010). It is apparent from
the preliminary work conducted and the conceptual model presented that the study
of service leadership styles will have implications for both academia and
practitioners.
In a Kenyan perspective on a study on financial performance of commercial banks,
Harms (2010) indicated that performance is the extent to which an organization
achieves a set of pre-defined targets that are unique to its mission. Leadership style
is a key determinant of the success or failure of any organization. Numerous
literature s on management mention various leadership styles and frameworks such
as autocratic, bureaucratic, charismatic, transactional and transformational, all of
which are based on several different approaches to leadership. Each style of
leadership affects organizational performance differently; some helping
organizations succeed and others hamper their growth leading to failure. Further , it
is upon this line of thinking that organizations known to have appropriate leadership
styles would help in enhancing employee performance thus resulting financial
performance.
The objectives of this research are therefore to conceptualize the service delivery
process based upon interactions between managers and employees ( organizational
encounters) and employees and customers ( service encounter) . In attempting to
explicate the construct of service leadership, useful platform may involve
categorizing leadership with various styles. More specifically , Bass (2007) notes that
by dissecting leadership into various styles, the effectiveness of different types of
leader can be better understood.

Transformational leadership style focus on the development of followers and their

needs. Managers exercising this style focus on development level and moralities with
the development of their skills ( Ismail et al 2009)
Leadership is life blood of any organization and its importance cannot be
underestimated many authors have studied this phenomenon but there is no
conscious definition of what leadership is no dominant paradigm for studying it and
little agreement regarding the best strategies for developing and little agreement
regarding the best strategies for developing and exercising it ( Bennis, 2007)

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According to Omolayale (2006) leadership as that kind of direction which person can
give a group of people under which him in such a way that these will influence
behavior of author individual or group, Ngodo, (2008) perceive leadership to be
reciprocal process of social influence in which leaders subordinates’ influence each
other in order to achieve organizational goals.

Thus , for an organization to remain successful having the right leader, Crucid. Jong
and Hartog (2007) have defined it as prices of influencing people in order to achieve
a good performance.

Leadership is style will determine goals efficiently and effectively it involves

integrated use of human financial and material resources performance has been
defined operationally here as a general term applied on part of all conduct of an
organization over a period of time. Banks also in India are also equally concerned
with their probability which in fact is the performance of its branches

Leadership style is the key determinant of the success or failure of any organizations,
leadership style is the manner and approach of precoding direction, implementing
plans and motivating people.
According to Ngambi et al. ( 2010) and Ngambi (2011) cited in Jeremy et al (2010)
leadership is a process of influencing others commitment towards realizing their full
potential in achieving a value added shared vision, with passion and integrity.

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2.2.3 Government Policies
Rok ( 2013) indicates that government policy entails the general principle by which a
government is guided in its management of public affairs, or legislature in its
measures. As applied to allow, ordinance, or Rule of law, the general purpose of
government policy is directed to the welfare or prosperity of the state or community.
The impact of government policy in business can be explained from the monetary or
fiscal perspective. Fiscal affects aggregate demand through changes in government
spending and taxation. Government spending and taxation influence employment
and household income, which dictate consumer spending and investment. Fiscal
policy determines government spending and tax rates. Fiscal policies , usually
enacted in response to recessions or employment shocks, are likely to increase
government spending in areas such as infrastructure, education and unemployment
benefits. Monetary impacts the money supply in an economy which, influences
interest rates and the inflation rate. Monetary policy impacts business expansion,
net exports, employment, cost of debt and the relative cost of consumption versus
saving. From the monetary point of view, the policy adopted by a government
depends largely on the enacting by central bank by manipulating money supply in
the economy. The money supply influences interest rates and inflation, both of
which are major determinants of employment: cost of debt and consumption levels.
Expansionary monetary policy entails a central bank buying Treasury notes,
decreasing interest rates on loans and businesses to borrow, Debt- funded business
expansion positively affects consumer spending and investment through
employment. Contractionary monetary policy is enacted to halt exceptionally high
inflation rates or normalize the effects of expansion and policy.

A study carried out in Germany about the E- payment in attention to the Kenyan
case indicated that the worldwide proliferation of the internet has led to the recent
birth of electronic payment system: a payment service solution-software that
enables monetary value to be transferred digitally. Today, electronic payment

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system id flourishing due to the openness, speed, anonymity, digitalization and
global accessibility characteristics of the Internet, which has facilitated real-time
payment transactions and other business activities. E- procurement allows
companies to leverage internet technology in the purchasing process. According to
(christensen & Laereid, 2007) any technology designed to facilitate the acquisition of
goods over the internet can be defined as e-procurement.

A study carried out in Nigeria, Olukosi (2008) showed that evaluation of government
policies to improve performance of small business sector has provoked a great deal
of debate and empirical inquiries in recent years. Initially economists were of the
opinion that government policies have no impact on business cycle but after the
great depression of the 1930s, Keynes showed that government policies could affect
business cycle. Further more if country’s monetary policies ensures availability of
loans at a reasonable rate, investment will also grow.
The increasingly complex financial integration of economies coupled with turmoil in
currency markets and their impacts have revived interests on external sector
variables, their volatility, and how they affect the domestic economy. The exchange
and inflation rates are important factors affecting business organization
performance. Most studies on exchange rate have always argued that the type of
exchange rate regimes incorporated by a country have implications on the economy
through their effects on international trade, output , financial markets, inflation,
employment and investment. The performance of businesses in Nigeria over the
years has not been impressive, it generally believed that monetary policy instability
constitutes a major constraint to domestic investment in Nigeria( Unegbu & Irefin,
2011).
In East Africa a study carried out in Uganda showed concern on interest rates or cost
of capital as factor affecting debt financing by commercial banks and profitability on
SMEs. Whited (2010) in his contemporary study on rural finance argued the cost of
money is intended to compensate a contractor for the capital cost of employing
certain facilities in the performance of contract. The cost of money charged by
lending institutions includes operating costs, administrative costs and an acceptable
rate return.

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 CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
3.1 INTRODUCTION
This chapter highlights the methodology and the procedures which will be used to
obtain research data. It covers research design, target population, sample design,
data collection procedures instruments which will be used and data analysis method.

3.2 Research Design

Mugenda (2006) defines a research design as a master plan specifying the methods
and procedures used for collecting and analyzing the needed information. In this
study descriptive research design will be used by the researcher since information to
be gathered involve administering questionnaires. The main purpose of the design
will be to describe systematically the situation or area of interest factually and
accurately. It will be useful for addressing questions that will relate to what, why and
how much can be used to measure the incidence of phenomena.

3.3 Target Population

Target population is group, individual, objects or items from which samples are
taken measurement in research. The target population for this research study will be
staffs of National Bank. The target population of study include top management,
middle management and operational staffs of the institution. The target population
will be as follows:
Table 3.1 Target Population
Category Frequency Percentage
Top Level Management 2 1%
Middle Level Management 5 4%
Operational Staff 123 95%
Total 130 100%

Source : Author (2022)

3.4 Sample Design

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According to Kothari (2012) sampling is the process by which a relatively small
number of individuals, object or events is selected and analyzed in order to find out
something about the entire population from which is selected. A sample is a small
proportion of targeted population selected using systematic form. The researcher
will use stratified random sampling because it enables generalization of a larger
population with margin of error that is statistically determinable. a sample size of 65
employees of National Bank will be considered. Kothari (2012) a sample is
representative, it is composed of 50% of the target population.
The sample size was as follows:
Table 3.2 Sample Design
Category Frequency Percentage
Top Level Management 2 1
Middle Level Management 5 4
Operational Staff 123 95
Total 130 100
Source: Author (2022)
3.5 Data Collection Procedures and Instruments
The researcher will use both primary and secondary sources to collect data. The
primary data will be collected using questionnaires because it is easier to prepare,
cover a wider area within a short time. The researcher will choose self- administered
questionnaire method for all correspondents as it is less expensive and will allow the
respondents to complete the questionnaire at a convenient time. A questionnaire is
printed form containing a set of questions for gathering information administered by
the researcher or his or her assistants, or self-administered under supervision or
unsupervised. The questionnaires will be answered by each of the individual
respondents independently. Secondary data will also be collected from the relevant
sources, example reports, newsletters and unpublished data on communication.

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3.5.1 Validity and Reliability of Research Instruments
Validity refers to whether the research measure, what it was intended to. Reliability
can be defined as the extent to which the measurement of test remains consistent
over repeated tests of the same subject under identical conditions. A pretest will be
done using six respondents who are not part of this final study. Specific questions
will be incorporated in the questionnaires which aims at capturing specific
information form the respondents. These preliminary questionnaire will be sent to
the employees to fill in and send them back for evaluation. The aim of the pilot
testing will be to check the reliability and validity of the questionnaires to achieve
accurate results.

3.6 Data Analysis and Procedures

This is the process of gathering, modelling and transforming raw data with the goal
of highlighting useful information, suggesting, conclusion and supporting decision
making (kothari , 2012) ; the purpose of data analysis will be to prepare crude data
into interpretable design. The data will be analyzed using qualitative and
quantitative statistics presented in tables, pie charts and bar graphs.

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 CHAPTER FOUR
DATA ANALYSIS PRESENTATION AND INTEERPRETATION OF FINDINGS
4.1 Introduction
This chapter undertook to analyze and discuss the data collected from respondents.

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