Determinants of financial innovation and its effects on banks performance in Kenya

Abstract

Due to universal trends and forces like globalisation, technology and liberalisation, banks in Kenya have continually undertaken financial innovation to improve financial performance This study investigated the determinants of financial innovation and the impact of financial innovation on bank performance in commercial banks in Kenya An exploratory research design was used on a sample of 43 commercial banks Primary data was collected through a questionnaire and secondary data were sourced from bank financial records A conceptual model was developed to show factors influencing financial innovation and its impact on bank performance The analytical model and the f- test and t-test were used to determine the strength of the relationship between the variables financial innovation in Kenya has been influenced by heavy competition financial service market, technological facilities, size of financial institution, macro economic conditions legislation and financial supervisory and financial risks These factors have led to increase in branch network and an increase in the number of customers They have also led to increased innovation in the areas of new technology, new products, new services and new processes. Among the surveyed banks majority of them have undertaken financial innovations as renewals of an existing product A smaller numbei have developed an entirely new technology, product or process Financial innovation in the banks was also found to bring benefits The most important being improved customer set vice, market expansion and increased bank revenue There arc also moderate benefits in reduction of number of customers in the banking halls reduction in operation costs and geographical expansion of banks The study therefore establishes that financial innovation has influenced bank performance in a positive way