ISSN 2348-1218 (print) International Journal of Interdisciplinary Research and Innovations ISSN 2348-1226 (online) Vol. 8, Issue 1, pp: (163-177), Month: January - March 2020, Available at: www.researchpublish.com
EFFECTS OF FINANCIAL INNOVATIONS ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA, A CASE STUDY OF EQUITY BANK OF KENYA LTD OTIENO WESLEY OKOTH, LUCY MUIA THE EAST AFRICAN UNIVERSITY, NAIROBI, KENYA
Abstract: The banking sector in Kenya is one of the fastest growing sectors of the economy having registered significance growth in the past decade. However, very few studies have been done to examine the effect of financial innovation on performance of commercial banks in kenya especially equity bank of Kenya limited. The purpose of the study was to assess the effect of financial innovation on commercial bank’s financial performance as the key players in the banking sector over a period of 3 years. Kenya’s financial sector has undergone significant transformation in the last few years. Many new more efficient and real time financial systems have come into place. Despite the undeniable importance of financial innovation, its effect on financial performance is not always obvious since there are reported cases of reverse causality between innovation and performance.Study results indicated that financial innovation indeed contributes to and is positively correlated to profitability in the banking sector particularly that of commercial banks. This is further supported by high uptake of more efficient financial systems in substitution for the less efficient traditional systems. This is evidenced by the positive correlation between Real Time Gross Settlement and Automated Clearing House (Cheques & EFTs) throughput over time; as well as that of profitability and Automated Clearing House throughput. Keywords: financial innovations,gross domestic product, information and communications technology, commercial banks, financial performance.
1. INTRODUCTION 1.1 Background of the Study The embrace of technology into service industries is becoming a strong trend as service providers are currently being urged to empower in financial technology to advance their performance. Innovation creates array of competitive positions and enhances a firm‟s potentiality in the market (Cefis&Marsili, 2003). Competition has created a fast- paced industry where firms must transform in order to survive (Nyathira, 2009). Hence, many service sectors, Commercial banks (Banks) being part of it, have been left with no preference but to embrace innovation to meet and even to surpass customers‟ satisfaction and service expectations to improve their financial performance. Therefore, Maorwe (2011) urges banks to adopt new innovative means and strategies to finance their activities rather than only relying on the members‟ deposits. In order to endure in the volatile and dynamic sector to attain its objectives within the competitive business environment, the Banks have to implement innovative strategies aimed at achieving competence in all operational levels by employing the most excellent practices that guarantee sustainability and growth (Mutuku, 2014). As observed by Grey (1996), the present day customers‟ stresses on innovative products, prompt delivery and good service provision and all of these are determined by the means that can advance the performance of routine tasks and non- routine projects to enable the organization personnel to collaborate and optimize processes of collecting, transforming and sharing the existing
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