Moderating effect of macro economic variables on the relationship between financial innovations adoption and financial sustainability of commercial banks in Kenya
Date
2024
Authors
Kiarie, K. W.
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
The financial sector has reported a rise in the rate at which new technology applications are upending the established style of operations in favor of one that is more digital, virtual and customer centric. The financial sector is ready for financial technology transformation because of historical institutions, outdated technology, and consumer-unfriendly practices. Most of commercial banks and especially tier II and tier III banks, haven’t been performing well financially due to the problem of growing non-performing loans (NPL) with most of them having cases of overreliance on foreign liabilities and debt which signals lack of financial sustainability. Banking technology models are invaluable and powerful tools for stimulating development, promoting growth, driving innovation and increasing competitiveness. Traditional banking services have changed as a result of these financial innovations, and this value addition to financial services cannot be disregarded. Thus, the purpose of the current study is to ascertain the impact financial innovation adoptions have on the financial sustainability of Kenyan commercial banks. The study was primarily examining the impact of integrated payment systems, cloud computing, blockchain technology, and artificial intelligence on commercial banks' sustainability. To anchor the study objectives, the study adopted financial intermediation theory, technology acceptance model and Schumpeter’s theory of innovation. Additionally, the moderating impact of macroeconomic conditions on the adoption of financial innovations and the Financial Sustainability of commercial banks was investigated. A total of 205 respondents from 41 commercial banking companies that were active by the end of year 2022 served as the study's targeted population for primary data using questionnaires. The study used a design which was descriptive correlational in nature. The collected data was regressed using SPSS versions 21.0, and the correlation and regression analysis, t-test, and ANOVA was used to explain the data. The study findings established that cloud computing, blockchain technology, artificial intelligence, integrated payments system, and macroeconomic variables are statistically and positively significant in explaining financial sustainability of commercial banks in Kenya. Macroeconomic variables had a negative and significant influence on financial sustainability of commercial banks in Kenya. Macroeconomic variables moderated the relationship between financial innovations and financial sustainability of commercial banks in Kenya. The study concluded that commercial banks have ventured into increasing their utilization of financial innovations. Consequently, the survival and success of commercial banks depend critically on the financial innovation adoption. The study suggested that financial innovations may be used to lessen traditional technology difficulties including capacity, redundancy, and resilience. Furthermore, the scalability of financial innovations gives institutions greater control over concerns like security and credit risk mitigations.
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