Financial Innovations development and its Impact on Financial Performance of Listed Banks in Kenya

Onesmus M. Nzioka, Margaret Kamakia



Purpose - This paper sought to investigate the relationship between the financial innovativeness and performance of the banks, given the existence of very little empirical work in this area.

Methodology - The study was modelled as a correlational survey. The primary data collection instrument used was a questionnaire that was administered to top management of the respective banks. The data collected was subjected to correlation and regression analysis.

Findings - The study suggests a positive relationship between financial innovation and financial performance of listed banks in Kenya.  Improvement in financial performance is attributed to the benefits of increased financial transactions accruing from continuous financial innovations (introduction of new products, financial linkages and development of systems to implement the innovation activities) by the banks. Worth noting is the positive impact of intense innovation activities on financial performance.

Implications - The extent of innovation (innovation effort) of banks has an impact on their financial performance as measured by ROE and ROA. Similarly, attributes such as systems to implement innovation activities as well as credit and deposit products have an influence on financial innovation and performance.

Value - All banks (both listed and private) should embrace financial innovation in order to boost their financial performance. For the banks that have already embraced financial innovation, there is a need to re-evaluate the extent of innovativeness with the aim of increasing the level of innovation activities which have a significant intermediation effect on financial innovation and performance.

Key words: Financial innovations, financial system deregulation

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