Effect of Technological Innovation on the Financial Performance of Banking Industries: The Case of Selected Commercial Banks in Ethiopia

Abstract

This study explores the influence of technological innovation on the financial performance of Ethiopian commercial banks. The financial performance of banking industries around the world is a multifaceted concept encompassing profitability, efficiency, risk management, and the broader financial health of the sector. The study used both descriptive and explanatory research designs. Quantitative research approach and Panel data was used for ten selected commercial banks were taken purposive sampling method based on the availability of data. Employing a robust multiple linear regression model, the research investigates the relationship between a bank's Return on Assets and various technological factors. The model achieves a high degree of accuracy, effectively explaining a significant portion of the variance observed in Return on Assets. The Key findings highlight the positive impact of technological advancements on Ethiopian banks. The study reveals statistically significant positive correlations between Return on Assets and factors like internet banking users, mobile banking users, automation teller machines, debit card holders and point-of-sale terminals. This suggests that banks actively embracing these technologies and operating in growing economies are likely to experience improved profitability. The analysis also sheds light on the negative influence of inflation. A statistically significant negative correlation is found between inflation rate and Return on Asset, indicating that higher inflation is associated with lower profitability for banks. This underscores the importance of managing inflation for a healthy banking sector in Ethiopia. In conclusion, the study suggests that Ethiopian commercial banks can enhance their financial performance and contribute to the nation's economic growth by strategically leveraging technological advancements, operating in growing markets, and effectively navigating inflationary pressures. These insights offer valuable guidance for Ethiopian banks to make informed decisions and achieve sustainable profitability