The Effect of Financial Innovation on Financial Performance of Commercial Banks in Ethiopia
No Thumbnail Available
Date
2018-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Addis Ababa University
Abstract
The purpose of this study was to examine the effect of financial innovations on the
financial performance of Commercial Banks in Ethiopia. An explanatory study was
carried out on commercial banks, to assess the impact of financial innovation on the
profitability. The study has examined the effect of financial innovation on return on assets
as one of the most fundamental indexes of profitability. The study used secondary data
employed purposive sampling technique to select nine banks for the study commercial
banks operating in Ethiopia covering the periods from 2015 to 2017. Key explanatory
variables were identified to disclose their relationship and influence on financial
performance of commercial banks. These independent and a control variables are number
of mobile banking users, number of automated teller machine terminals, number of new
saving accounts, number of point of sale terminal, debit cardholders and managerial
efficiency. Data was analyzed using both descriptive and inferential statistics. Multiple
regression with the aid of E-view 9 software was used to examine the effect of independent
variables on return on asset (ROA). Result using fixed effect panel least square regression
exhibited that numbers of mobile banking users and number of new saving accounts have
positive and significant effect on financial performance of commercial banks measured by
return on asset. The study shows that increased number of mobile banking users and
number of new saving accounts had a positive effect on the financial performance of
commercial banks by reducing transaction cost and mobilizing deposit. However,
numbers of ATM terminals have a negative and significant effect on financial performance
of commercial banks due to high initial investment as compared to income generated.
Number of point of sale terminals and number of debit cardholders are insignificant to
profitability of Ethiopia. These are due to inaccessibility and lack of awareness on bank
users. In addition, management efficiency shows a negative relation were management are
not cost effective in commercial banks of Ethiopia. Generally, financial innovation has
positive effect on financial performance of commercial banks in Ethiopia. Therefore, this
study recommends for enhancing return on asset, commercial banks should exert more on
awareness creation about financial innovation service and keep up on introducing and
implementing financial innovations across the country.
Description
A thesis submitted to Addis Ababa University College of Business and
Economics department of accounting and finance in partial fulfillment of
the requirements for the degree of masters of Science in accounting and
finance
Keywords
Commercial banks, Debit card, Financial innovation, Mobile banking