The Relationship Between Banking Innovations and Financial Performance of Commercial Banks in Kenya

Abstract

The goal of the study was to ascertain how technology advancements affected the financial performance of commercial banks in Kenya. The following theories were used in the study: the diffusion of innovation theory, the Schumpeter theory of innovation, and the constraint-induced financial innovation theory. The population of the study, which used a descriptive research approach, included all 42 commercial banks that were registered and actively operating as of December 31, 2022.For the years 2015 through 2022, secondary data was gathered Data on net income, total assets, and capital adequacy ratio were taken from the annual reports of the various commercial banks. The CBK's annual survey report provided information on the quantity of transactions made using mobile devices, the dollar amount of bank transactions made using Internet devices throughout the year, and the dollar amount of transactions made using ATMs. The acquired data was subjected to diagnostic tests for normality, linearity, multicollinearity, and autocorrelation to determine its appropriateness for the creation of a linear regression model. For data analysis, the study used descriptive statistics such the median and mode. To determine the relationship between the explained and explanatory factors, inferential statistics were also applied in the study through the use of multiple regression models. According to correlation analysis, online banking showed a positive but insignificant link with the financial performance of commercial banks, whereas mobile banking and ATM banking had a favorable correlation with financial performance. On the other hand, regression analysis showed that there was a positive and significant correlation between the financial success of commercial banks and online, mobile, and ATM banking. The report advised commercial banks to use technological advancements like mobile banking, ATM banking, and internet banking more frequently. The report also advised the government, working through the Kenyan central bank, to create rules that would promote the use of ATM, internet, and mobile banking in all commercial banks.