FINANCIAL INNOVATIONS AND PERFORMANCE OF TIER III COMMERCIAL BANKS IN KENYA
Abstract
The CBK reports pointed out a number of commercial banks facing issues with their financial performance to include Eco Bank, Equatorial Commercial Bank, Consolidated bank and Credit Bank. Other institutions like Chase, Dubai and Imperial bank have been placed under receivership. The belief in the sector is that introducing innovations will improve performance. This study sought to establish the effect of financial innovation on the financial performance of tier III commercial banks in Kenya. Specifically, the study looked at i-banking and agency banking and their effect on the financial performance of tier III commercial banks in Kenya with Central Bank of Kenya regulation as the moderating variable. The innovation diffusion theory, the agency theory and the regulatory capture theory were used to underpin the study. The study adopted causal research design and census to a population of 21 tier III commercial banks in Kenya. Secondary data was collected over a period of 2016 to 2020 using a data collection sheet. Content and face validity were adopted with the help of the supervisor. Reliability was established through Cronbach Alpha Coefficient with the 0.7 taken as the threshold. Diagnostic tests were conducted on the secondary data covering multicollinearity, autocorrelation, normality test and heteroskedasticity test. In order to test the formulated hypotheses, inferential statistics covering regression analysis was conducted and the deductions were drawn based on p-values that were interpreted at 5% level of significance. The analyzed findings were presented through tables and figures. The study established that i-banking and agency banking all have a positive and statistically significant effect on financial performance partially moderated by Central Bank of Kenya regulations. The study concluded that financial innovations have a significant effect on financial performance and this is partially moderated by CBK regulation. The study recommended that ICT managers of the tier III commercial banks in Kenya should partner with telecommunication companies like Safaricom and Airtel to subsidize the costs of accessing banking services through the internet The direct sales representatives of the Tier III commercial banks in Kenya should increase marketing efforts of agency banking so as to significantly contribute to financial performance.
Key Words: Financial innovations, agency banking, internet banking, tier III commercial banks
CITATION: Resa, J. M., Mithi, F., & Kosgei, M. (2022). Financial innovations and performance of tier III commercial banks in Kenya. The Strategic Journal of Business & Change Management, 9 (2), 1083 – 1101.
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DOI: http://dx.doi.org/10.61426/sjbcm.v9i2.2320
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