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

Abstract

Abstract

Evidence available from Kenya's main commercial banks shows a downward trend in investment revenue. There are a number of elements inherent to the banking industry that contribute to the aforementioned issues with banks' financial performance. This study's main goal was to investigate the aspects that contribute to the success of Kenya's commercial banking industry with respect to innovation and overall financial performance. Three theories served as the basis for the research: the theory of transaction costs, the theory of finance and growth, and the Agency theory. The study combined quantitative and qualitative approaches, using a cross-sectional survey methodology. A total of 42 commercial banks in Kenya that were operational between 2009 and 2021 were analyzed for this report. These banks had all been licensed and registered under the Banking Act. The percentage of those that answered the survey was 83.3%. It has been determined that mobile banking, automated teller machine banking, and agency banking significantly impact the performance of Kenya's commercial banks. Additionally, synergy between mobile banking and automated teller machine banking has a significant influence. When all factors were analysed jointly, mobile banking, ATM banking, and Agency banking were found to have a significant effect on financial performance. However, ATM banking had no effect. It was also demonstrated that the association between firm financial performance and financial innovation is reversed. The study concluded that adoption of mobile banking and agency banking influenced the financial performance of most commercial banks in Kenya. Theoretically, the contribution of this study is that bank innovation in Kenya has a beneficial influence on profitability and that institutions should continuously seek and execute durable business links to accelerate the diffusion of innovations and achieve the desired economic consequences.

Keywords: Bank Innovation, Performance, Commercial Banks