Effects of Financial Innovations on Operational Efficiency of Commercial Banks in Kenya
Efficiency of the banking systems is important especially in third world countries as Kenya is among the third world countries because the banking system serves as the back-bone for general financial growth in terms of innovation and financial development. Nearly, all studies on the origins of bank and thrift disappointments find that deteriorating organisations are either not embracing the financial innovations due to the upward trend of the technology or the plans engaged in tackling the innovations are not considerate. So many scholars have established that weakening banks have a tendency of being located further away from the finest practice frontier. Consequently, as well as having large bank, banks headed towards insolvency also have a tendency of facing low operation efficiency. Not a single of the previous researchers has considered the relationship between financial innovations and operational efficiency of commercial banks registered at the NSE (Nairobi Security Exchange). Purpose of this research was to find out the consequence of financial innovations on operational efficiency of listed commercial banks at the NSE (Nairobi Security Exchange). The study established that number of ATMs, number of agency outlets and size of the bank (three independent variables studied) explain a substantial 73.8% of operational efficiency among registered commercial banks at the NSE (Nairobi Security Exchange). This research also concludes the number of ATMs positively and significantly highly influences the operational efficiency among commercial banks listed at the Nairobi security exchange. The research indorses all registered Kenyan Commercial banks, being the controller of their own banking innovations and establishments to reaching out the considerable population, they should consider strategies that will not only benefit the banks in terms of population and popularity but also consider the profitability such that the operational efficiency is enhanced. Management of commercial banks should militate against Moral hazard risks when advancing its number of ATMs/ number of agency outlets taking into consideration that the size of bank might play a very minimal role in the operational efficiency . This can be achieved by good strategic plan without necessarily setting out various plans in the name of profitability. Even though banking sector has experienced competition at an increasing level with time, policies and regulations need to be enforced to help control and still encourage competition in the financial division but not only competition but also the strategies that makes the respective commercial banks stands unique in its operations and market penetration. The policies should also be accompanied with actions to encourage the growth and brand of minor and average sized banks in a proposal to improve their capability to enter the market and also enjoy the financial innovations techniques in order to disrupt market power by some banks.
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