Effect Of Financial Innovations on Profitability of Private Commercial Banks in Ethiopia

Abstract

Purpose – The purpose of this study was to examine the effect of financial innovations on the profitability of private Commercial Banks in Ethiopia.

Methodology – An explanatory study was carried out on commercial banks, to examine the effect of financial innovation on profitability. Secondary data were used and purposive sampling technique was used to select sixteen private commercial banks operating in Ethiopia covering the periods from 2016 to 2020. Key explanatory variables were identified to disclose their relationship and influence on profitability. Data was analyzed using both descriptive and inferential statistics. Multiple regressions were used to examine the effect of independent variables on return on asset.

Findings – Random effect model regression exhibited that five and three variables are having a positive and negative effect on the dependent variable. Generally, financial innovation has positive effect on financial performance of private commercial banks in Ethiopia.

Implications – 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.

Originality – This study examines the effect of financial innovations on profitability of private Commercial Banks in Ethiopia. It tested the effect of various independent variables on profitability by accounting more recent data. It is among the first studies that consider agency banking as one of the unique independent variable having effect on profitability of Ethiopian banks.