Effect Of Financial Innovation On Financial Performance Of Commercial Banks In Kenya

Abstract

The Kenyan commercial banking sector is experiencing unprecedented changes attributable to technological adoption. Currently, tremendous and significant changes are being witnessed in the commercial which have resulted and continues to shock the financial market with diversified, customer oriented financial products. All these changes are wholly or partially driven by the urge of being on top of the market and outdo the wits of their competitors. These technological disruptions have not only been embraced by the institution to increase its profit books but to ensure the dynamic market is well utilized. These changes have made the commercial banks to revitalize their profit driven motive amidst the competitive globalized financial market. The main goal of this study was to determine the effect of financial innovations on the financial performance of commercial banks in Kenya. This research was guided by the following hypotheses which informed the study; Mobile banking, Agency banking, Self-service banking and internet banking have no significant effect on commercial banks performance. The target population comprised all the eight (8) tier one commercial banks in Kenya. Data on their performance with the respective independent variables was sourced from the Central Bank of Kenya (CBK) database. Panel data regression analysis was employed as the methodological tool for analysis. The analysed data was presented using tables, graphs and pie charts. The correlation analysis showed that mobile banking, internet banking, agency banking and self-service banking had a positive relationship with return on assets. The study concluded that mobile banking, internet banking, agency banking and selfservice banking have a positive effect on financial performance of tier 1 commercial banks in Kenya. The study recommends that commercial banks adopt other financial innovations in order to increase their financial performance.