The Impact of Financial Innovation on The Performance of Commercial Banks in Ethiopia
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Date
2025-07
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Addis Ababa University
Abstract
This study examines the impact of financial innovation on the performance of commercial banks in Ethiopia, focusing on both financial and operational outcomes. Financial innovation, including internet banking, mobile banking, automated teller machines (ATMs), ATM cards, and point of sale (POS) terminals, has revolutionized banking operations globally. Using panel data from eight commercial banks over nine years (2015–2023), this research employs a regression model to analyze the relationship between financial innovation and bank performance. Return on Assets (ROA) measures financial performance, while the number of new customer recruits serves as an indicator of operational performance, with bank size included as a control variable. The findings reveal that mobile banking, ATM cards, and POS terminals have a positive and statistically significant impact on both financial and operational performance, suggesting that these innovations enhance efficiency and customer acquisition. Conversely, internet banking and ATMs exhibit either an insignificant or negative effect, highlighting challenges related to adoption or profitability. The study underscores the importance of embracing financial innovation to strengthen bank performance, while addressing barriers to adoption. The results offer valuable insights for policymakers, banking executives, and regulators seeking to shape strategies for digital transformation and financial sector growth. Future research should consider additional financial innovation variables and assess their long-term effects on competitiveness and financial inclusion in Ethiopia.
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Keywords
Financial Innovation, Bank Performance, ROA, Mobile Banking, ATM Cards, POS Terminals