Effect of Financial Innovations on Financial Performance of Commercial Banks in Kenya

Abstract

Monetary inventions are used by commercial banks so that they can compete in financial markets and therefore improves their performance and maintains their efficiency on market. Financial experts and academicians have focused on reviewing the relationship between financial inventions and banking performance but no consensus has been reached yet. Commercial 2 banks in Kenya adopted 2 financial 2 innovations 2 and therefore provide a good context to investigate this relationship. This research sought to bring out the effect of adopted 2 financial 2 innovations 2 on the financial 2 performance among commercial 2 banks 2 in Kenya. The research established the effect of agency banking, mobile banking, ATMs and internet banking on financial 2 performance among banks in Kenya. Bank size, capital adequacy and credit risk and were used as the control variables in the model. Descriptive research design was used. The target population comprised of Kenyan banks. There are 38 banks in Kenya as at 2020 but only 37 provided complete data set. Research variables data were derived from CBK and audited bank's annual financial statements from 2016 to 2020. Regression and correlation analysis were used to test the study hypotheses by establishing the relationship between adopted2financial2 innovations2and ROA. The results indicated R2 of 0.448 which implied that the selected independent variables contributed 44.8% to variations in ROA. The study further found that agency banking (β=0.106, p=0.008), mobile banking (β=0.113, p=0.000), internet banking (β=0.133, p=0.000), and bank size (β=0.411, p=0.000) recorded a positively and substantial relationship with ROA among banks in Kenya. Credit risk recorded a substantial negative effect on ROA (β=-0.506, p=0.000) while ATMs and capital adequacy were not statistically significant. The study recommends the need for policy makers to provide a conducive environment for banks to undertake adopted 2 financial 2 innovations 2 as this enhances their financial 2 performance. Managers and directors of commercial 2 banks 2 should also work on improving their adopted 2 financial 2 innovations 2 coverage in a bid to enhance their performance and to remain competitive in the ever changing environment.