Impact of financial innovations on the financial performance of commercial banks in Kenya

Abstract

Over the last years there have been many changes in the Kenyan banking sector and these changes have been attributed to the various innovations adopted by banks. These innovations were categorized into product, process and institutional. Thus, this study sought to determine the impact of financial innovation on the financial performance of commercial banks in Kenya. The population of this study consisted of 44 commercial banks in Kenya. Out of these, a sample of 20 commercial banks was randomly sampled. 20 questionnaires were sent out to the top and middle level management of these organizations because they are most likely to be the ones who make the final decisions. 18 commercial banks of the 20 sampled responded and were used in this study. Data collected was edited for accuracy, consistency, uniformity and completeness to enable coding and tabulation before analysis. Data was analyzed and presented using descriptive statistics, tables, graphs and pie-charts, by the use of Statistical Package for Social Sciences (SPSS) version 17. The study concluded that adoption of financial innovations in the operations of commercial banks has a positive effect on their financial performance. This can be supported by the fact that financial innovations also increases banks' profitability, gives banks competitive advantage and increases service quality and efficiency. It was further noted that that there had been a notable increase in the number of bank accounts opened over a five year period. This could be attributable to the fact that technological innovations led to increased efficiency in account processing whereas market innovations led to increased market share.