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EFFECTS OF THE CHEQUE TRUNCATION SYSTEM ON THE PERFORMANCE OF COMMERCIAL BANKS: A CASE OF CFC STANBIC BANK

 

Millicent Gathuku
Jomo Kenyatta University of Agriculture and Technology

ABSTRACT

The purpose of the study was to investigating the effects of cheque truncation on the performance of commercial banks in Kenya. Cheque truncation system is a system which has recently been adopted in Kenya. It is a process where physical cheques presented for payment in a bank are converted into an electronic form and the image transmitted electronically to the clearing house for processing and eventual paying. The cheque truncation system took effect in Kenya in the year 2011 and has since reduced cheque frauds and errors drastically. It has also helped in reducing the number of employees needed in the clearing cycle hence the extra personnel can be used to perform other tasks in the organization. CFC Stanbic lost 600 million in the year ended 2010 which was a huge percentage given that there are 42 other banks in the country. The study revealed that reduction in transaction cost as result of adoption of cheque truncation system influenced the performance of the organization to great extent. The study established that there was reduction in clearing cycle which affected the performance of the bank to great extent. The Study found that cheque truncation system would reduce frauds in the banks thus influencing the performance of the banks. The study found that ICT is of paramount importance to the success of the cheque truncation system and the advantage of the improved system is that it has allowed for better communication between the banks since they have to communicate to ensure that less time is taken to realize value on the cheques.


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