Effect of Initial Public Offer Financing on Performance of cooperative Bank of Kenya Limited in Nyanza Region, Kenya

Abstract

Financial institutions including Co-operative Bank of Kenya Limited performed very dismally in eighties both in Kenya and globally. During this period, a number of banks and microfinance institutions did poorly and very few of them were listed in the securities market. A number of factors have been said to have occasioned the poor performance during this period; such factors include: lack of political goodwill, global economic crisis i.e. recession and poor management. Currently the banks are doing well in terms of performance but individual bank performance is not the same. Financing decisions they make may have brought either positive or negative effect. Co-operative Bank of Kenya reached a decision to go public in 2008 with an aim of getting enough deposits. The bank needed capital to finance its core system, expand its outlets, develop products and increase its lending in a bid to get its competitive space in the industry, despite the reported slowdown in IPO market during the same period. After the IPO, the bank experienced steady growth in its profit before tax through to the year 2013. Previously, the bank's performance was dismal; it did poorly in the year 2000 and 2001. It is however not clear whether improved performance is due to the IPO or not. This study investigated the effect of IPQ financing on the performance of Co-operative Bank of Kenya Limited in Nyanza region. Cooperative bank of Kenya is used in the study because it is one of the top commercial ban ks in Kenya: commercial banks sell almost similar products in a homogeneous market, the results therefc.c are expected to be generalizable. Specific objectives were: to determine th~ effect of branch expansion on profit before tax in Co-operative Bank of Kenya Limited, to establish the effect of product development on profit before tax in Co-operative Bank of Kenya Limited and to investigate the effect of Customer satisfaction on profit before tax in cooperative bank of Kenya I =nited. It "/as conceptualized that branch net work, product development, CSR and technology influences PBT and there also exist intervening factors such as government policies, economic factors, legal factors and leadership factors. The study adopted descriptive research design. The target population was 120 Co-operative Bank employees from six branches in Nyanza region Stratified random sampling was used to sample 92 employees from the 120 employees;th .study used both primary and secondary data. Questionnaires with both structured and unstructured questions were used to collect primary data while annual financial reports for Co-operative Bank were used to provide secondary data. Regression results shown that the branch expansion insignificantly affect profit before tax, p=-0.021, p=0.316>0.05, this means that instead of increasing the number of branches, the bank can decide to capitalize in alternative banking channels such as putting more ATM lobbies, agency banking and mobile banking. This can increase revenue as compared to branches whose cost of setting up may be expensive. Further, results have shown that product development significantly affects profit before tax, P=O.llS, p=O.021<0.05, the commercial banks therefore should develop unique products that may capture the market hence increase revenue. Finally, the amount used in corporate social responsibility was found to be significantly affecting profit before tax, p=0.074, p=0.022<0.OS. The cost of technology was also found to be significantly affecting profit before tax, ~=-0.297, p=O.OOO<O.OSCommercial , banks therefore should invest more on powerful systems that are real time and that serve customers fast. This level of efficiency will lead to good customer experience, auraction of more customers hence more revenue. In conclusion, the study found out that IPO financing influences profit before tax in Co-operative Bank of Kenya and therefore recommend that commercial banks should procure funds through IPQ financing as it is realized from the study that IPO financing significantly influences profit before tax of Co-operative Bank of Kenya Limited.