The effect of financial innovations on financial performance of commercial banks in Kenya

Abstract

The financial institutions have embraced changes by exploiting the capabilities presented by the Information and Technology. Financial innovations adopted by commercial banks refer to the development of new products and new ways of delivering products to customers. The specific objectives of the study were; to determine the effect of electronic fund transfers, mobile banking and internet banking on financial performance of commercial banks in Kenya. This study had a target population of an aggregate of all the commercial banks that are licensed and regulated by the Central Bank of Kenya with a sample of twelve commercial banks. This study used secondary data from Central Bank of Kenya National payments Statistics supervisory reports and bank annual reports. This study collected data for a period of seven years.Data was analyzed using STATA. A multiple regression model was used to establish the relationship between the electronic banking, mobile banking and internet banking on the Return on Assets of the commercial banks. The study has found that financial innovations have an influence on the performance of commercial banks in Kenya. The study found out that variations in Return on Assets could be explained by electronic funds transfers, mobile banking and internet banking.The study further established that all variables, that is, electronic funds transfers, mobile banking and internet banking affect Return on Assets positively. The study thus recommends that it is important for commercial banks to prudently adopt financial innovations as it has both positive effects on performance of commercial banks in Kenya.