The relationship between financial innovations and the growth of commercial banks in Kenya

Abstract

The banking sector in Kenya is one of the fastest growing sectors of the economy having registered significance growth in the past two decades. However, very few studies have been done to examine the key drivers of growth for commercial banks in Kenya. This notwithstanding, it is important to note that the sector is The banking sector in Kenya is one of the fastest growing sectors of the economy having registered significance growth in the past two decades. However, very few studies have been done to examine the key drivers of growth for commercial banks in Kenya. This notwithstanding, it is important to note that the sector is one of the leading sectors in country when it comes to innovation. Thus, the objective of the study was to establish the relationship between financial innovations and the growth of commercial banks. This study was designed as a correlation study. The population comprised of 43 commercial banks and all of them formed the sample size. Both primary and secondary data were used in the study with the primary data on financial instruments being collected using questionnaires while secondary data on growth indicators was collected from the financial statements of banks. Data from 32 (74.4% response rate) banks was collected and analysed using descriptive analysis, correlation analysis, and regression analysis. The study found that financial innovation had a positive effect on growth factors – revenues, pre-tax profits, customer deposits, and loan advances. The study concludes that financial innovations of commercial banks in Kenya do not affect growth of banks. The study recommends that there is need for commercial banks to introduce more innovations in order to gain from the advantages that come with such innovations. There is also need or more product developments as opposed to technological innovations in the banking industry.