Innovative Banking Practices and Financial Performance of Commercial Banks in Kenya
Keywords:
Bank Innovation, Innovative Banking Practices, Automation Practices
Abstract
Commercial banks serve as key financial intermediaries in facilitation of the flow of money in the banking industry. Commercial banks offer credit to investment banks in order to offer investment opportunities for risky investments especially for financial securities using depositors’ money. Globally, banks are affected by broad difficulties in the operating environment. The banking industry has embraced innovation to sustain competitiveness. Financial innovations used by commercial banks revolve around the latest product, service and its conveyance to consumers. Consequently, this information influenced the research with its aim as; investigating innovative banking applications and monetary capability of banks. Particular goals included examining how; real time gross settlements (RTGS), electronic fund transfers (EFT), pay bill innovation in mobile banking and the extent of agency banking influence monetary potential of banks. Research anchored on the Schumpeter theory of innovations, the agency and bank-led theories. It was explanatory in nature and applied a census approach to gather information. The targeted group included commercial banks registered under the Central Bank totalling to 42 tiers 1. Raw and derived data was equally utilized including, financial statements and face to face interviews with top level managers. Collected information was examined by SPSS. Given conclusions were dispensed descriptively, and by inferring to statistical presentations. The resulting conclusion was that; when RTGS, agency banking, EFT, and mobile banking are solely brought up/down by a single unit, financial performance increased/ decreased by 0.163, 0.27, 0.197, and 0.318 units. At a constant however, financial performance remained at 0.236 out of 5 units. In conclusion, commercial in banks have significantly relied on innovative banking practices to shift their financial performance to new heights. The study has particularly placed both mobile and agency banking at a more central position in driving financial performance to the desired level than other factors including the RTGS and EFT. As part of the recommendations, managements of commercial banks should consider scaling up their adoption of RTGS, agency banking, EFT, and mobile banking as ways of reducing the operating cost of their respective banks reducing banking hall congestions since most of the frequently sought banking services can be achieved without one on one meeting with the bank tellers. Management should also consider adopting more innovative banking practices besides those this research investigated.
References
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Kagendo, F. K. (2015). E-banking strategy and performance of commercial banks in Kenya. Unpublished MBA project, School of Business, University of Nairobi.
Kamakia, S. (2014). Effect of product innovation on performance of commercial banks in Kenya. unpublished MBA thesis, Kenyatta university.
Khrawish, H.A. (2011) Determinants of Commercial Banks Performance: Evidence from Jordan. International Research Journal of Finance and Economics, 5(5), 19-45.
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Kumar, K. V. (2011). Innovations in modern banking and innovative financial inclusion–issues and challenges. Clear IJRCM, 1(2), 147-196.
Lyman, T., Pickens, M. & Porteous. D. (2008). Regulating Transformational Branchless Banking: Mobile Phones and Other Technology to Increase Access to Finance. Washington, D.C: CGAP/DFID.
Mabrouk, A., & Mamoghli, C. (2010). Dynamic of financial innovation and performance of banking firms: Context of an emerging banking industry. International Research Journal of Finance and Economics, 5(6), 20-26.
Mañalac, W., Yap, A. & Torreja, M. (2001). Real Time Gross Settlement(Rtgs) System and Its Implications for central banking. Bangko Sentral Review
Mbogo, G. M. (2011). The Effects of Financial Innovation on Financial Performance of Insurance Companies in Kenya. Unpublished MBA project. Nairobi: University of Nairobi.
Mbugua, I. & Dr. Omagwa, J. (2017). Agency banking and financial performance of commercial banks in Embu county, Kenya 2017. International Academic Journal of Economics and Finance, 2(3), 348-367
Moranga, M. (2018). Mobile banking strategy and performance of KCB limited Kericho county, Kenya. Unpublished Mba project. Nairobi. Kenyatta University.
Mugane, C. (2016). The Effect of Financial Innovations on the Financial Performance of Commercial Banks in Kenya. International Journal of Finance and Accounting, 1(1), 16-29.
Mugenda, O. M. & Mugenda, A. G. (2003). Research Methods: Quantitative and Qualitative Approaches. Nairobi: Acts Press.
Muhoro, D. I. & Dr.Mungai, J., (2018). Real time gross settlement and financial performance of commercial banks in Kenya. paperless International Academic Journal of Economics and Finance, 3(1), 110-122
Murthy, Y., & Sree, R. (2003). A study on financial ratios of major commercial banks. Research Studies, College of Banking & Financial Studies, Sultanate of Oman, 3(2), 490-505.
Nina Bockova & Ondrej Zizlavsky (2016). The innovation and financial performance of a company: A study from Czech manufacturing industry. Transformations in Business and Economics 15(3): 156-175
Njuki, M. (2012). Agencies fail to decongest Kenya’s banking halls. https://www.capitalfm.co.ke/business
Nofie, I. (2011). The diffusion of electronic banking in Indonesia. Manchester: Manchester Business School.
OECD (2005). Oslo manual: guidelines for collecting and interpreting innovation data. Paris, OECD.
Ogare, Hannington O., (2013). The effect of electronic banking on the financial performance of commercial banks in Kenya. University of Nairobi.
Olavarrieta, S. & Friedmann, R. (2008). Market orientation, knowledge-related resources and firm performance. Journal of Business Research, 61(6), 623–630.
Oloo, O. (2010). Banking Survey Report, The best banks this decade 2000-2009, Think Business Limited, Kenya, www.bankingsurvey.co.ke
Onal, H. 2011. Sağlık Sektöründe İnnovasyon Yaklaşımı: İzmir’de Hizmet Veren Kamu-Özel Hastanelerin Değerlendirilmesi Üzerine Bir Uygulama. Dumlupınar Üniversitesi, Yüksek Lisans Tezi.
Ongore, V. (2013). Determinants of Financial Performance of Commercial Banks in Kenya. International Journal of Economics and Financial Issues, 3(1), 237-252.
Ongore, V. O. & Kusa, G. B. (2013). Determinants of financial performance of commercial banks in Kenya. International Journal of Economics and Financial Issues, 3 (1), 237-252.
Ongore, V.O. (2013) Determinants of Financial Performance of Commercial Banks in Kenya. International Journal of Economics and Financial Issues, 3(1), 237-252.
Onjala, N. (2009). A Determinants of Financial Performance of Commercial Banks in Kenya. Unpublished MBA project. Nairobi: University of Nairobi.
Orodho, J.A. (2004). Elements of education and social science research application in education and social sciences. Masola publishers, Nairobi Kenya.
Osewe, E.J., & Muturi, W. (2017). Effects of e-banking innovations on the financial performance of commercial banks in Kenya.
Owens, D. (2006). What is ethics in research & why is it important. In The National International Academic Journal of Economics and Finance, 2(3), 348-367.
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Published
2021-08-13
How to Cite
Mohamud, H., & Warui, F. (2021). Innovative Banking Practices and Financial Performance of Commercial Banks in Kenya. International Journal of Current Aspects in Finance, Banking and Accounting, 3(1), 41-53. https://doi.org/10.35942/ijcfa.v3i1.180
Section
Articles
