The Effect Of Financial Innovations On Financial Performance Of Commercial Banks In Ethiopia

Abstract

This study examines the effect of financial innovations on the financial performance of commercial banks in Ethiopia. Using panel data from 2014 to 2024, the research employs a fixed-effects regression model to address endogeneity concerns. Mobile Banking (MOBB) demonstrated the strongest positive impact on profitability, with a 1% increase in mobile banking users associated with a 3.04% rise in return on assets (ROA). Hence, enhanced operational efficiency and customer reach are required, aligning with global trends in digital banking. POS terminals showed a statistically significant but economically modest effect, with each additional POS terminal linked to a 1.96% increase in ROA. High implementation costs and competitive pressures may limit short-term profitability gains. ATMs had a positive but statistically insignificant effect on ROA, suggesting their impact is less pronounced compared to digital innovations like mobile banking. The study recommends that banks prioritize mobile banking expansion, optimize POS deployment, and strengthen cybersecurity. Policymakers should foster supportive regulatory frameworks and digital infrastructure to enhance financial inclusion. Future research should explore longitudinal impacts and cross-country comparisons