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

Abstract

Purpose - This paper sought to investigate the relationship between the financialinnovativeness and performance of the banks, given the existence of very little empiricalwork in this area.  Methodology - The study was modelled as a correlational survey. The primary datacollection instrument used was a questionnaire that was administered to top managementof the respective banks. The data collected was subjected to correlation and regressionanalysis.  Findings - The study suggests a positive relationship between financial innovation andfinancial performance of listed banks in Kenya.  Improvement in financial performance isattributed to the benefits of increased financial transactions accruing from continuousfinancial innovations (introduction of new products, financial linkages and developmentof systems to implement the innovation activities) by the banks. Worth noting is thepositive impact of intense innovation activities on financial performance.  Implications - The extent of innovation (innovation effort) of banks has an impact ontheir financial performance as measured by ROE and ROA. Similarly, attributes such assystems to implement innovation activities as well as credit and deposit products have aninfluence on financial innovation and performance.  Value - All banks (both listed and private) should embrace financial innovation in orderto boost their financial performance. For the banks that have already embraced financialinnovation, there is a need to re-evaluate the extent of innovativeness with the aim ofincreasing the level of innovation activities which have a significant intermediation effecton financial innovation and performance.  Key words:  Financial innovations, financial system deregulation