| dc.description.abstract | The moderating role of virtual banking on income diversification, operational efficiency and financial performance has been a matter of debate. Whether, this role has diversified income sources and income streams, improved operational efficiency, transformed and improved financial performance of commercial banks in Kenya, yet even before these innovative processes, banks used to do well anyway is the ground for anchoring this study. Specifically, the study sought to: assess the effect of interest income; examine the effect of commissions and fees; evaluate the effect of operational efficiency; determine the effect of loan loss provisions and analyze the moderating role of virtual banking on the relationship between Income Diversification, Operational Efficiency and the Financial Performance of commercial banks in Kenya. This study was guided by the Resource Based Theory, Market Power Theory, Adoption, Diffusion and Usage of Innovations Theory (ADUI) and Transactional Cost Innovative (TCI) Theory. The study adopted quantitative research paradigm design which included descriptive, correlational, experimental and causal research designs. The target population comprised of 120 senior management staff from 40 Commercial Banks operating in Kenya between the years 2013 to 2017. Cochran (1963) formula was used to arrive at a sample size of 36 commercial banks. Simple random sampling technique was used to select a sample size of 108 senior managers comprising 36 heads of credit, 36 heads of operations and 36 heads of Information Technology (IT), representing 90% of the target population. Secondary data was collected through review of records of the banks, reports, journals and books. Primary data was obtained from respondents through a questionnaire and interview schedule. Instrument reliability stood at Cronbach’s Alpha of 0.879. The study tested for unit root and stationarity, co-integration, multi-collinearity, presence of outliers, normality and heteroscedasticity. The results showed that Interest Income had a positive significant influence on financial performance ( = 0.616, t = 38.466, p=0.000<0.05). Commissions and Fees had a positive significant influence on financial performance ( = 1.892, t = 30.501, p=0.000<0.05). Operational Efficiency had a negative significant influence on financial performance ( = -66.1, t = 5.586,p=0.000<0.05) and Loan Loss Provisions had a negative significant influence on financial performance of commercial banks in Kenya ( = -1.58, t = -12.054,p=0.000<0.05). On moderation, the results indicated that the interaction effect of Virtual Banking had a positive significant influence on the relationship between Interest Income and the financial performance (ß2 = 1.836, ß3 = 2.215, t = 27.235, p-value =0.000 < 0.05). The interaction effect of Virtual Banking had a positive significant influence on the relationship between Commissions/Fees and financial performance (ß2 = 1.057, ß3 = 1.623, t = 21.916, p-value =0.000 < 0.05). The interaction effect of Virtual Banking had a positive significant influence on the relationship between operational efficiency and financial performance (ß2 = 3.340, ß3 = 2.436, t = -6.696, p-value =0.007 < 0.05). The interaction effect of Virtual Banking had a positive significant influence on the relationship between Loan Loss Provisions and financial performance (ß2 = 2.451, ß3 = 1.713, t = -2.736, p-value=0.004 < 0.05). The study recommended that banks should embrace virtual banking to improve income, efficiency and performance. The study concluded that banks should reimagine and embrace innovation to achieve greater heights of financial performance. The study will be significant in the management of financial institutions; Government policy makers and other regulators may use it and it can also form a basis for further research. | en_US |