The effect of financial innovation on the financial performance of listed commercial banks in Kenya
Zewdie, Getnet H
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Financial innovations are increasingly publicized as one of the most successful tools for banking system with the ability to positively affect its participant's. The importance of the financial innovation and financial system is not only to banking industry, but also well understood to overall economic development. This project analyzes the current state of financial innovation and discusses its effect on the financial performance of the banks in Kenya. Census study was adopted for this study to achieve the set objective. The population of the study consisted of all 43 commercial banks in Kenya. The primary data for the study was collected from the majority of commercial banks in Kenya i.e. 32 banks responded the questionnaires well and secondary data was collected by using publication, annual financial statement reports of commercial banks on the website and the bank supervision annual report from 2006 - 2012 which was organized by Central Bank of Kenya. Multiple regression models with SPPS-20 used and descriptive statistics such as means, standard deviation and regression analysis was applied to analyze the data. The actual effect of financial innovation on financial performance was measured by regressing ROA and ROE against 12 financial innovations. The main findings ofthe study were financial innovations such as number of ATM cards, number of credit cards issued to customers, number of debit cards issued to customers, number of Minors/Children account, number of Special deposit account, number of Youth oriented account, number of customer registered for e-banking, number of customer registered for SMS, number of customer registered for mobile banking and number of agency banking had improved ROA of the banks studied by a factor of .021, .004, .008, .03, .022, .005, .015, .014, .009, and .003 respectively, except unsecured loan and rating customer process for risk management with - .003 and - .009. Further, the study found out that financial innovations improved the earnings in the commercial banks that reflected on ROE. Majority of the commercial banks studied revealed that there was growth of financial performance from the year 2006 to 2012. The study recommends that, however; financial innovation is yet shows significant positive effect on the performance of banks, it needs for future investigation beyond financial measures used in the study as technology continues to penetrate market. The policy maker should response in formulating policies aimed at to reduce the challenges of banks to adopt financial innovations easily and ensure that the regulations that exist over the innovation and infrastructure should helpful to reduce any gap. All the stakeholders need to be involved in the financial innovation implementation process and practice that will facilitate performance of the banks.