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The Effects of Financial Innovations

 Summary

The purpose of the study was to assess the effects of financial innovations on performance of the banking sector. Technological innovations have led to the rise of new and profound ways of 

 banking operations in Sudan. The methodology opted for the study was casual research

(explanatory research) in which 16 commercial banks were taken into consideration for the

study. The data collected for the research was from !!" # !1$. The findings revealed that the

adoption of financial innovation led to higher profitability for commercial banks. The dependent

variable was named as %eturn on &ssets (%'&). The independent variables were named as

&Ts mobile banking and money borrowed through internet transactions. The results of the

study revealed a positive and moderate linear relationships using &Ts. The number of mobile

transactions showed positive but weak relationship with financial performance of commercial

 banks. oney borrowed showed a weak but negative relationship. &s per the depiction of 

*orolyne (!1) financial innovation contributes to and is positively correlated to profitability

in the banking sector particularly the commercial banks. +atrick (!11) found that there is a

significant relationship between the adoption of financial innovations and the profit levels of the

commercial banks of ,enya. -inancial innovations present banks with effective ways of 

conducting transactions and communicating with their customer market. These innovations are

revolving around convenience security and efficiency of banking operations due to which

customer would demand new ways for conducting transactions with their bank. *ustomers are

gradually shifting towards effective payment systems as observed through negative correlation

 between real time gross settlement transactions turnover and &utomated clearing house

throughput and the negative correlation between profitability and &* throughput.

Recommendations

*ommercial banks should adopt financial innovations to increase financial performance

 by providing consumer base and capital base. /overnments through financial sector regulatory authorities should encourage banks to

adopt financial innovations. 0ut at the same time they should closely regulate such

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developments to assure the integrity of payment systems. This will enhance effective and

efficient delivery of services by the financial sector to all sectors of the economy. -aster and more secure payment systems spurs development of businesses and economic

growth in all other sectors in addition to facilitating financial deepening.

Similar studies should be done on other firms such as micro finance institutions. There is also need to carry out similar tests for a longer time period of time and on

uarterly basis to regress the %T/S. This will assist in getting more precise and diverse

information on the changes in the independent variables along the years in the different

commercial banks that were under research. This will increase the scope of the research

and clear indication of financial innovation on the economy as a whole.

Limitations

2ack of full information on the financial performance of the commercial banks since

some commercial banks do not reveal financial positions and transaction volume of the

 banks. %eluctance of respondents in giving answers to the asked uestions as they feared that the

information would be used for other purposes3this limits the time frame.

0anking sectors4 profit after tax and exceptional items figures were only available on an

annual basis. 5ffective interpretation could have been done it the data was available on a

uarterly and monthly basis.