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A Case Study of Dfcu Bank. by Ndugu Maryanne Wahito 07\K

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A Case Study of Dfcu Bank. by Ndugu Maryanne Wahito 07\K PRODUCT DIFFERENTIATION AND PERFORMANCE OF COMMERCIAL BANKS: A CASE STUDY OF DFCU BANK. BY NDUGU MARYANNE WAHITO 07\K\3153\EXT A DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF A DEGREE OF BACHELOR OF COMMERCE OF MAKERERE UNIVERSITY. JUNE 2011 i DECLARATION I, NDUGU MARYANNE WAHITO, declare that this is my original work and it has never been presented to any university for any academic award. Where work of another individual has been used, acknowledgement has been duly given. Signature: …………………………. Date: ………………………………. Ndugu MaryAnne Wahito 07/K/3153/EXT ii APPROVAL This is to certify that this research ―product differentiation and performance of commercial banks” has been under my supervision as the university supervisor. Signature: ……………………………. Date: …………………………………. Mr.Musiime Grace (Supervisor) iii DEDICATION I dedicate this project to my parents, Mr. James Ichamuya, Mrs. Rose Nyambura (RIP) and Mrs. Agnes Muthoni, my twin brother SimonPeter and my sisters Beatrice, Martha, Maryanne and my grand Pa Peter Ichamuya (RIP) and my niece Stephanie for their continued support and patience as I pursued my university education and all those who have made an impact in my life to make it what I am today. iv ACKNOWLEDGEMENT I wish to thank the Almighty God for His continued blessings as I pursued my undergraduate studies at Makerere University. My sincere gratitude goes to my supervisor, Mr.Musiime Grace for his constant guidance in writing this project and his patience during my presentation. May God bless him for the dedication he has shown in the course of finishing this research work. My gratitude is also extended to all respondents that assisted me in collection of my data for analysis of my project. I would also like to thank all my friends who have been the source of my inspiration. I would like to thank in a special way, my cousin David Ndirangu and my friends Patrick, Peris, Mukami and Sylviah for their continued support in my research. Lastly, I wish to thank all those whom I have not mentioned above and in one way or another have contributed to the success of this project. Thank You. v LIST OF ACCRONYMNS AND ABBREVIATIONS ADB African Development Bank ATMs Automated –teller machines CAMEL Capital adequacy, Asset quality, Management, Earnings quality and Liquidity DEA Data Envelopment Analysis DFCU Development Finance Company of Uganda FIA Financial Institutions Act FIs Financial Institutions IASB International Accounting Standards Board NPLs Non performing Loans SPSS Statistical Package for Social Scientists WiB Women in Business vi TABLE OF CONTENTS DECLARATION .................................................................................................................................... ii APPROVAL .......................................................................................................................................... iii DEDICATION ....................................................................................................................................... iv ACKNOWLEDGEMENT ....................................................................................................................... v LIST OF ACCRONYMNS AND ABBREVIATIONS ............................................................................ vi LIST OF TABLES ................................................................................................................................. ix ABSTRACT ............................................................................................................................................ x CHAPTER ONE:INTRODUCTION ....................................................................................................... 1 1.0 Introduction ....................................................................................................................................... 1 1.1. Background of the study. .................................................................................................................. 1 1.3. Purpose of the study ........................................................................................................................ 2 1.4. Objectives of the study...................................................................................................................... 3 1.5. Study questions................................................................................................................................. 3 1.6.1. Geographical scope ........................................................................................................................ 3 1.6.2. Content scope ................................................................................................................................ 3 1.6.3. Time scope .................................................................................................................................... 3 1.7. Significance of the study ................................................................................................................... 3 CHAPTER TWO: LITERATURE REVIEW ........................................................................................... 4 2.0 Introduction ....................................................................................................................................... 4 2.1. PRODUCT DIFFERENTIATION .................................................................................................... 4 2.2. Types of product differentiation ........................................................................................................ 4 2.2.1. Vertical differentiation ................................................................................................................... 4 2.2.2. Horizontal differentiation ............................................................................................................... 5 2.2.3. Mixed differentiation ..................................................................................................................... 5 2.3. Product differentiation by banks........................................................................................................ 5 2.4. Determinants of financial innovations. .............................................................................................. 6 2.4.1. Competition. .................................................................................................................................. 6 2.4.2. Size. .............................................................................................................................................. 6 2.4.3. Type of organization. ..................................................................................................................... 6 2.4.4. Diversification. .............................................................................................................................. 6 2.5. Benefits of product differentiation..................................................................................................... 7 vii 2.6. The Costs of Differentiation .............................................................................................................. 7 2.7. BANK PERFORMANCE ................................................................................................................. 8 2.8. Performance measures ...................................................................................................................... 8 2.8.1 Profitability .................................................................................................................................... 9 2.8.2. Capital adequacy. ........................................................................................................................... 9 2.8.3. Asset quality .................................................................................................................................. 9 2.8.4. Management Quality .................................................................................................................... 10 2.8.5. Earning Performance ................................................................................................................... 10 2.8.7. Sensitivity to Market Risk .......................................................................................................... 11 2.9. Relationship between product differentiation and performance of commercial banks ....................... 11 Conclusion ............................................................................................................................................ 12 CHAPTER THREE: METHODOLOGY ............................................................................................... 14 3.0 Introduction ..................................................................................................................................... 14 3.1 Research design ............................................................................................................................... 14 3.2 Study population .............................................................................................................................. 14 3.3 Sample size...................................................................................................................................... 14 3.3 Sampling methods. .........................................................................................................................
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