Effect of Financial Innovation on Financial Performance of Commercial Banks in Kenya

Abstract

This study looks at the various forms of financial innovations that have continuously taken place in the provision of financial services in Kenya over a period of 4 years. Over a period of time Kenya has experienced continued growth in the adoption of various non-cash modes of payment hence the need for continuous studies to establish the effect of these financial innovations in the financial services sector. The objective of this study was to establish the effect of financial innovation on the financial performance of commercial banks in Kenya. The research adopted a descriptive design; census study was employed where all 43 commercial banks licensed by the central bank of Kenya as at 30th June 2014 were engaged. Secondary data was obtained from reports published by the central bank of Kenya (CBK), data was analyzed using statistical package for social sciences (SPSS). Descriptive statistics, Pearson correlation and multiple regression analysis methods were applied. The study found that there was strong positive correlation coefficient of 0.531 between the financial performance of commercial banks in Kenya and adoption of ATMS. The study also found that there is a strong positive correlation of 0.501 between financial performance of commercial banks in Kenya and transactions made via KEPSS with significance levels of 0.029 and 0.016 respectively which are both below 0.05. The study recommends that commercial banks should continue investing in ATMs as this was found to have positive influence on financial performance and also financial institutions should continue in convincing their customers to adopt utilization of KEPSS.