Agency Banking and Stability of Commercial Banks in Kenya: The Moderating Role of Asset Quality
DOI:
https://doi.org/10.70619/vol6iss4pp17-26-813Keywords:
Agency banking, stability of commercial banks, asset qualityAbstract
This study examined the effect of agency banking on the stability of commercial banks in Kenya, with a specific focus on the moderating role of asset quality. The rapid expansion of agency banking has enhanced financial inclusion and reduced operational costs, but its implications for bank stability remain unclear. The study was grounded in the Technology Acceptance Model and adopted a positivist philosophy and an explanatory research design. A census approach was employed, targeting all 39 licensed commercial banks in Kenya, using secondary panel data obtained from audited financial statements and Central Bank reports for the period 2017 to 2023. Descriptive statistics and panel regression analysis were used to analyze the data, while moderation effects were tested using interaction terms. The findings revealed that agency banking has a positive, statistically significant effect on the fragility index (β = 1.250, p < 0.05), indicating that higher levels of agency banking transactions are associated with greater bank vulnerability. Further results showed that asset quality significantly moderates this relationship, with a negative and significant interaction effect (β = -3.065, p < 0.05), implying that strong asset quality mitigates the destabilizing effects of agency banking. The study concludes that although agency banking enhances outreach and operational efficiency, it may expose banks to increased risks if not effectively managed. The study recommends strengthening credit risk management, enhancing oversight of agency banking operations, and improving regulatory frameworks to ensure that the expansion of agency banking supports financial stability.
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Copyright (c) 2026 Robinah Kwamboka Manuguti, Lucy Wamugo Mwangi, Salome Musau
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