EFFECTS OF FINANCIAL INNOVATIONS ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA, A CASE STUDY OF EQUITY BANK OF KENYA LTD

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.

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.